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Heterogeneity and the Provision of a Public Good in Leading and Lagging Regions

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 analyze 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 decentralized and centralized public good provision and comment on the resulting welfare implications. We obtain two key conclusions. First, under decentralization, there exist several situations in which it is optimal for only one region to provide the public good. Second, under centralization, this exclusive provision is not optimal but the amount of the public good provided can be larger or smaller than the amount provided under decentralization. Our research tells 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.