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The fiscal decentralization impulse now sweeping the world often leads to partial decentralization, where subnational governments are funded by central transfers, rather than leading to full local autonomy. Despite the practical important of this arrangement, the literature contains no economic analysis of a partial decentralization regime in a Tiebout-style model. This paper provides such an analysis, relying on the key assumption that public-good provision requires effort on the part of government officials. By choosing different degrees of effort, localities can then provide different public-good levels even when a fixed, common transfer constrains them to spend the same amount. A number of useful results are derived.

This paper offers the first formal economic analysis of carve-outs under airline antitrust im- munity. Carve-outs are designed to limit the potential anticompetitive effects of cooperation by alliance partners in hub-to-hub markets, where they provide overlapping nonstop service. While the paper shows that carve-outs are beneficial when the alliance does not involve full integration of the partners' operations on the hub-to-hub route, its key point is that a carve-out may be harmful when imposed on a joint-venture alliance. A JV alliance involves full exploitation of economies of traffic density on the hub-to-hub route, and a carve-out prevents the realization of these benefits. While a carve-out may limit anticompetitive incentives on the hub-to-hub route, welfare may be reduced if the resulting gains are overshadowed by the efficiency loss generated by the carve-out.

This paper explores the effect of airline emissions charges on airfares, airline service quality, aircraft design features, and network structure, using a detailed and realistic theoretical model of competing duopoly airlines. These impacts are derived by analyzing the effects of an increase in the effective price of fuel, which is the path by which emissions charges will alter airline choices. The results show that emission charges will raise fares, reduce flight frequency, increase load factors, and raise aircraft fuel efficiency, while having no effect on aircraft size. Given that these adjustments occur in response to the treatment of an emissions externality that is currently unaddressed, they represent efficient changes that move society closer to a social optimum.