Common agency and coordination: General theory and application to government policy making

Avinash Dixit, Gene M. Grossman, Elhanan Helpman

Research output: Contribution to journalArticlepeer-review

318 Scopus citations

Abstract

We develop a model of common agency with complete information and general preferences with nontransferable utility, and we prove that the principals' Nash equilibrium in truthful strategies implements an efficient action. We apply this theory to the construction of a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump-sum taxes or transfers. The lobbies use only the nondistorting transfers in their noncooperative equilibrium, but their intergroup competition for transfers turns into a prisoners' dilemma in which the government captures all the gain that is potentially available to the parties.

Original languageEnglish
Pages (from-to)752-769
Number of pages18
JournalJournal of Political Economy
Volume105
Issue number4
DOIs
StatePublished - Aug 1997

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