Fixed Grants and the Supply of Public Goods: the Case of Agricultural Research

Abstract

This article analyzes the provision of public goods and services by state and local Abstract governments with fixed intergovernmental grants. Equilibrium conditions are derived for an activity with private and pure public joint products, funded by state funds and fixed intergovernmental grants. Fixed grants are shown to impose an additional constraint on lower level governments and induce them to supply fewer units of the public good. Also, such grants impose a cost on the grantor equal to the potential loss in spillins for each agent.