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 coordination 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.

David E. Wildasin / dew@davidwildasin.us