The optimal state aid control: No control

Arbeitspapier

We extend a model of wasteful state aid in Dewatripont and Seabright (2006, Journal of the European Economic Association 4, 513-522) by a supranational controlling authority. The model combines moral hazard and adverse selection to show that politicians fund wasteful projects to signal their effort. Voters, unable to observe project benefits or effort, reward funding with a reelection premium that separates a high-effort politician from a low-effort politician. We examine state aid control by a benevolent authority which receives extra signals about the state of the world. We find that signals on the politician type are worthless. For signals on the project type, we derive a sufficient condition for aid control to unambiguously decrease welfare. We also prove that politicians do not respond to marginal changes in incentives. In this setup, the optimal state aid control is fairly often no control.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IES Working Paper ; No. 14/2009

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Positive Analysis of Policy Formulation and Implementation ; Asymmetric and Private Information; Mechanism Design ; Business Taxes and Subsidies including sales and value-added (VAT)
• Thema: state aid ; signaling ; career concerns ; aid control ; Subvention ; Signalling ; Finanzkontrolle

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Gregor, Martin ; Roháč, Dalibor
• Ereignis: Veröffentlichung
• (wer): Charles University in Prague, Institute of Economic Studies (IES)
• (wo): Prague
• (wann): 2009

Weitere Informationen

• Handle: http://hdl.handle.net/10419/83363
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ