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Equitable and Efficient Federal Structures with Decentralized Leadership, Spillovers, and Attachment of Heterogeneous Labor
Author(s) -
AOYAMA NAOTO,
SILVA EMILSON C. D.
Publication year - 2010
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2010.01453.x
Subject(s) - economics , welfare , incentive , differentiable function , equivalence (formal languages) , center (category theory) , microeconomics , function (biology) , market economy , mathematics , mathematical analysis , chemistry , crystallography , discrete mathematics , evolutionary biology , biology
Relying on differentiability assumptions and on conditions that guarantee interior solutions, we show that a federation featuring decentralized leadership, interregional spillovers, and labor attachment allocates resources efficiently under two sets of circumstances. The first is when the center is Rawlsian. The second is when individual utilities are quasi‐linear, regional welfare functions are Benthamite, and the center's objective function is a Bergson–Samuelson transformation of regional welfare levels, which also satisfies conditions needed for the center to view regional welfare levels as normal goods. In both sets of circumstances, efficient behavior follows from incentive equivalence promoted by the center's egalitarian transfers.