Think
Locally, Act Locally: Spillovers, Spillbacks, and Efficient
Decentralized Policymaking
by
Hikaru Ogawa School of Economics Nagoya University Nagoya Aichi 464-8601 JAPAN
and
David E. Wildasin Martin School of Public Policy and Department of Economics University of Kentucky Lexington, KY 40506-0027 USA
Abstract
We analyze models with interjurisdictional spillovers among
heterogeneous jurisdictions, such as CO_2 emissions that affect the
global environment. Each jurisdiction's emissions depend upon the
local stock of capital, which is interjurisdictionally-mobile and
subject to local taxation. In important cases, decentralized
policymaking leads to efficient resource allocation, even in the
complete absence of corrective interventions by higher-level
governments or coor- dination of policy through Coasian bargaining. In
particular, even when the preferences and production technologies
differ among the agents, the decentralized system can still result in
globally efficient allocation.
