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IZA
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Government and Cities: Contests and the Decentralization of Decision Making
by
Gil S. Epstein, Ira N. Gang
(August 2002)
Abstract:
Governments do not have perfect information regarding the priorities and the needs of
different groups in the economy. This lack of knowledge opens the door for different groups
to lobby the government in order to receive the government’s support. We set up a model of
hierarchical contests and compare the implications of a centralized allocation process with a
decentralized allocation process. We show the potential existence of a poverty trap as a
result of fiscal federalism.
Text: See Discussion Paper No. 547 
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