Abstract
This paper compares the efficacy of a centralized and a decentralized rights structure in determining the size of an externality-generating project. Consider a central authority and two localities. One locality can operate a variable-size project which produces an externality that affects the other locality. Each locality may have some private information concerning its own net benefit from the project. Under centralization, localities are vertically integrated with a benevolent central authority who effectively possesses all property rights. Under decentralization, localities are separate legal entities (endowed with property rights) who bargain to determine the project size. We examine the performance of these two regimes and show how one or the other may dominate depending on the distributions of private and external benefits from the project.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 417-451 |
| Number of pages | 35 |
| Journal | Journal of Public Economic Theory |
| Volume | 24 |
| Issue number | 3 |
| DOIs | |
| State | Published - Jun 2022 |
Funding
We thank Robin Boadway, Deniz Dizdar, Faruk Gul, Lu Hu, Eric Maskin, Dilip Mookherjee, Stefan Reichelstein, Mike Peters, Patrick Rey, Jacques Robert, Lars Stole, Tymon Tatur, and François Vaillancourt for comments and thank a number of seminar and conference audiences. The first author thanks the Department of Economics of the Université de Montréal for its hospitality during several visits. The second author thanks the MEDS Department at Northwestern University for its hospitality during several visits. He is grateful to C.I.R.A.N.O., C.R.S.H. and F.Q.R.S.C. for financial support. We are grateful to the Editor and the anonymous reviewers for their helpful advice.
ASJC Scopus subject areas
- Sociology and Political Science
- Finance
- Economics and Econometrics