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Conditional Grants, Grant-Seeking and Welfare when there is Government Failure on the Subordinate Level

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  • Bischoff, Ivo

Abstract

The paper addresses the welfare implications of conditional grants if government failure leads to inefficiencies in the production of regional public goods and services. Conditional grants may improve welfare by setting incentives for regions to improve efficiency. At the same time, resources are wasted in the process of grant-seeking. This paper provides a theoretical model to assess the net effect on welfare. A three-stage game-theoretic context is developed and simulations are performed to derive the optimal grant-distribution scheme. We found conditional grants to be welfare-enhancing in the vast majority of simulated scenarios under a classical utilitarian welfare function. Once distributional concerns are accounted for, the scope for conditional grants becomes limited.

Suggested Citation

  • Bischoff, Ivo, 2008. "Conditional Grants, Grant-Seeking and Welfare when there is Government Failure on the Subordinate Level," ZEW Discussion Papers 08-031, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:7303
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    More about this item

    Keywords

    conditional grants; government failure; rent-seeking; normative public finance;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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