Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

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  • Hikaru Ogawa
    School of Economics, Nagoya University, Nagoya, Aichi 464-8601, Japan.
  • David E Wildasin
    Martin School of Public Policy and Department of Economics, University of Kentucky, Lexington, KY 40506-0027.

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<jats:p>We analyze models with interjurisdictional spillovers among heterogeneous jurisdictions, such as CO<jats:sub>2</jats:sub>emissions that affect the global environment. Each jurisdiction's emissions depend upon the local stock of capital, which is inter-jurisdictionally 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 result in globally efficient allocation. (JEL D62, H23, H73, H87, Q58)</jats:p>

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