Dixit Grossman Helpman (1997) - Common Agency And Coordination General Theory And Application To Government Policy Making

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Dixit, A., G. Grossman and E. Helpman (1997), Common Agency and Coordination: General Theory and Application to Government Policy Making, Journal of Political Economy 105, 752-69. pdf

Abstract

We develop a model of common agency with complete informa- tion 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 pro- ducer taxes or subsidies and targeted lump-sum taxes or transfers. The lobbies use only the nondistorting transfers in their noncoop- erative 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.