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    Endogenous local public good prices in decentralised economies with population mobility and inter-regional transfers

    225906_156400_Endogenous_prices.pdf (282.7Kb)
    Access Status
    Open access
    Authors
    Petchey, Jeffrey
    Petchey, J.
    Date
    2015
    Type
    Working Paper
    
    Metadata
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    Citation
    Petchey, J. and Petchey, J. 2015. Endogenous local public good prices in decentralised economies with population mobility and inter-regional transfers, Working Papers: Centre for Research in Applied Economics: no. 03042015, Curtin University of Technology, School of Economics and Finance.
    Additional URLs
    http://www.curtin.edu.au/research/crae/local/docs/CRAE_WP_03042015_Jeff.pdf
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/27678
    Collection
    • Curtin Research Publications
    Abstract

    Economic models of regional economies with local public goods, corrective inter-regional transfers and population mobility assume decision-makers are small price takers. We argue this is reasonable for private goods but that local public good prices are in fact endogenous, varying with settlement patterns and hence regional/central policies. Decision-makers should therefore be modelled as having the power to distort policies in order to manipulate public good prices. We show that incentive equivalence in regional economies is sufficient to ensure that known efficiency results, whether the transfer is assigned to regions or the centre, are undisturbed by endogenous local public good prices. However, the corrective inter-regional transfer now includes input price externalities arising from migration which are not accounted for in price taking models. Hence, allowing for endogenous local public good prices extends what we know about the theory of corrective inter-regional transfers.

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