INTERREGIONAL SPILLOVERS IN THE PRESENCE OF PERFECT AND IMPERFECT HOUSEHOLD MOBILITY

When households are immobile across regions, the decentralized provision of public goods that generate interregional benefit spillovers is inefficiently low. We analyze this problem in an environment of interregional household migration and obtain the following results: if households are perfectly mobile across regions, then the decentralized provision of public goods generating spillovers is socially efficient. There is no need for central government intervention. If households are attached to particular regions for cultural or nationalistic reasons, however, at least one of two regions undersupplies the public good. Central government intervention can enhance efficiency.