Leadership in Public Good Provision: A Timing Game Perspective

Abstract

We address in this paper the issue of leadership when two governments provide public goods to their constituencies with cross-border externalities as both public goods are valued by consumers in both countries. We study a timing game between two different countries: before providing public goods, the two policymakers non-cooperatively decide their preferred sequence of moves. We establish conditions under which a first- or second-mover advantage emerges for each country, highlighting the role of spillovers and the complementarity or substitutability of public goods. As a result, we are able to prove that there is no leader when, for both countries, public goods are substitutable. When public goods are complements for both countries, each of them may emerge as the leader in the game. Hence a coordination issue arises. We use the notion of risk-dominance to select the leading government. Finally, in the mixed case, the government for whom public goods are substitutable becomes the leader. Copyright � 2010 Wiley Periodicals, Inc..

Skill Diversity and Leadership in Team Production

“…This paper is also related to the literature on endogenous timing in a public good or a team production game. Kempf and Rota-Graziosi (2010) develop an endogenous timing model where two countries provide public goods, and show that the complementarity or substitutability of public goods is crucial for the endogenous emergence of leadership. In their study, if the public goods are substitutes (complements), then both players' contributions are strategic substitutes (complements), and thus simultaneous-move (sequential-move) equilibrium occurs.…”

Information Value Under Demand Uncertainty and Endogenous Market Leadership

“…23 To illustrate how our findings inform other strategically similar settings, consider a game in which two countries (or other governmental jurisdictions) choose how much of a public good to provide. Kempf and Rota-Graziosi (2010a) have modeled this as a timing game in a very similar framework to that we employ, but under the assumption that both countries have full information regarding the value of the public good. They model the possibility that public goods are substitutes or complements.…”

“…Most of this literature has been in the industrial organization context where quantity competition between firms is the classic example of first-mover advantage (the Stackelberg model), which invites the question of how leadership is achieved. However, timing games with endogenous leadership have been described in other contexts as well, including public goods provision (Kempf and Rota-Graziosi 2010a) and tax competition (Kempf and Rota-Graziosi 2010b), in which the players are governments. The impact of information on the timing of the quantity competition game between firms, and the resulting value of information and market structure, is closely analogous to such strategic environments.…”

Endogenous Timing in Strategic Environmental Policymaking

“…To have a meaningful analysis, we exclude the possibility that there are extremely large differences between d i and d j . 14 In this section, we particularly focus on the endogenous order of moves in policymaking. Therefore, we do not exhibit and compare the equilibrium tax rates, outputs, and profits but only the welfare.…”

“…We now state the following proposition: 14 The differences in di can be interpreted as differences in the level of technology for emission abatement or pollution adaptation between countries: if a country has the superior (inferior) technology, then one unit of emission imposes lesser (greater) environmental costs on society. Therefore, di < dj describes the situation where country i has a relatively superior emission abatement or adaptation technology than country j.…”