Heterogeneity and the provision of a public good in leading and lagging regions

Abstract

The literature on leading and lagging regions has paid scant attention to how heterogeneity between the two regions impacts the provision of a public good. Given this lacuna, our contribution is to construct a game-theoretic model of an aggregate economy consisting of a leading and a lagging region and to then analyse this model. We show how two kinds of heterogeneity affect the provision of a public good such as higher education. In addition, we focus on decentralised and centralised public good provision and comment on the resulting welfare implications. We obtain two key conclusions. First, under decentralisation, there exist several situations in which it is optimal for only one region to provide the public good. Second, under centralisation, this exclusive provision is not optimal but the amount of the public good provided can be larger or smaller than the amount provided under decentralisation. Our research shows policymakers that population size and values differences between the two regions and the use of majority voting are key factors to consider when pondering the optimal provision of a public good.