Infrastructure Provision and Locational Efficiency in a Federation

How do different strategies of infrastructure provision affect the spatial distribution of firms and households in a federation? The current article analyzes three polar cases: in the first case there is no publicly provided infrastructure at all. The second case is the case of uniform provision, i.e., a federal government provides the same amount of infrastructure to each region, regardless of the initial spatial distribution of firms, households, and tax revenues. The third strategy is decentralized provision, i.e., infrastructure is provided according to regional tax revenues. It is shown that the superior strategy depends on the initial distribution of firms among regions which may reflect historical accidence.

Kiel Institute Expert