Premium
Interregional negotiations and strategic delegation under government subsidy schemes
Author(s) -
Shinohara Ryusuke
Publication year - 2021
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/jpet.12494
Subject(s) - negotiation , subsidy , delegation , context (archaeology) , matching (statistics) , government (linguistics) , outcome (game theory) , economics , microeconomics , public economics , political science , market economy , law , management , linguistics , statistics , philosophy , mathematics , paleontology , biology
Abstract We examine the strategic delegation problem in the context of interregional negotiations under the subsidy policies of a central government. It is well known that when such negotiations are delegated to representatives, each region in a country elects its representative strategically, resulting in inefficient negotiation outcomes. This study focuses on a common subsidy policy called a cost‐matching grant to examine whether an optimal grant exists that restores the efficiency of negotiation outcomes. Our results show that the central government obtains this optimal grant if the manipulability of the negotiation breakdown outcome is sufficiently weak. The strength of the manipulability is important because introducing a grant generates a new kind of manipulation of negotiation breakdown outcomes. However, when a new representative is elected after a negotiation breaks down, the new manipulability is negated. Hence, the central government always obtains the optimal cost‐matching grant.