BARGAINING BETWEEN BENEVOLENT JURISDICTIONS OR WHEN DELEGATION INDUCES INEFFICIENCIES

This paper considers the problem of bargaining between benevolent juri sdictions about local public goods and head taxes. It is shown that de legation to benevolent jurisdictions will, in general, induce distorti ons away from efficiency, where efficiency means an efficient provisio n of local public goods and an efficient distribution of consumers. Th is distortion is caused by (1) the divergence between social and juris dictional objectives, and (2) the impossibility for jurisdictions to r ealize side payments without modifying either the provision of local p ublic goods or the distribution of consumers.