Endogenous timing of decentralized leadership with heterogeneous spillovers

Abstract

This paper considers the decentralized leadership model of local government with heterogeneous spillovers. In this model, as in the traditional decentralized leadership model, central government determines interregional transfer policies ex post, but the timing of policymakings of local governments can be chosen, sequential or simultaneous. We aim to investigate the types of timing games that can plausibly emerge as a consequence of rational decision-making by local governments that maximizes regional welfare. In most cases of spillovers, we find that the simultaneous move game is realized because local governments choose to be a leader in timing selection, and social welfare of the simultaneous move game is higher than that of the sequential move game. This implies that the realized simultaneous move game is superior in terms of social welfare.