ON THE DECENTRALIZED PROVISION OF PUBLIC-GOODS WITH SPILLOVERS IN THEPRESENCE OF HOUSEHOLD MOBILITY

When households are immobile among regions, the decentralized provisio n of public goods that generate interregional benefit spillovers is in efficiently low. A model of interregional migration is used to study t he provision of such services in the presence of free mobility of hous eholds. Within this model we find a surprising result: the Nash equili brium of competing regional governments is socially efficient. Though only maximizing the utility of their own residents, regional governmen ts perfectly internalize the externalities associated with their provi sion of public goods. There is no role for a higher-level government t o encourage the supply of public goods by a Pigovian subsidy.