Dynamics of policy adoption with state dependence

David R. Agrawal, Gregory A. Trandel

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We study the dynamics of policy diffusion when a first-moving jurisdiction that legalizes an activity reduces the probability of legalization in nearby later-acting jurisdictions. If a jurisdiction's firms can sell to neighboring residents, but if the good is competitively sold at every location, then policies converge: all jurisdictions legalize or all jurisdictions ban. If firms have some market power, and if the location of firms depends on the order of legalization, an early-adopting government may legalize, but an otherwise identical, but later-acting, neighboring government might not. This possible asymmetry is due to state dependence resulting from the initial distribution of firms following the first-mover's legalization. Empirically, counties that legalize the sale of fireworks first have more firework vendors just inside their border than counties that legalize later. Furthermore, counties have a longer duration to legalize fireworks if nearby counties have already adopted. State dependence resulting from a first-mover advantage contributes to the policy divergence of regulatory policies.

Original languageEnglish
Article number103471
JournalRegional Science and Urban Economics
Volume79
DOIs
StatePublished - Nov 2019

Bibliographical note

Publisher Copyright:
© 2019 Elsevier B.V.

Keywords

  • Borders
  • Dynamics
  • Externalities
  • Fiscal competition
  • State dependence

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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