visitors all year round. Suppose that the policy instrument of the government is the
tax paid by the residents of the country. We consider three possible cases:
(1) The collected taxes are allocated to the building of the park. An increase in
the lump-sum tax or in the tax rate implies an increase in the size of the park.
We assume that such an increase raises the benefit of the non-local residents,
however, it reduces the benefit of the local residents. In contrast to example 1,
in the present example it is not clear who is the LB and the HB player. It is
clear nevertheless that as the size of the park increases, the benefit of the non-
local residents from approval of the proposed tax and from the corresponding
park and the benefit of the local residents from the rejection of this proposal
increase with the tax and, in turn, with the size of the park. As in the previous
example the proposed reform is of type (iv) .
(2) Although an increase in taxes increases the park size, we now assume that
beyond a certain point, an increase in the size of the park does not increase the
benefit of the general public. In such a case, an increase in taxes and, in turn,
in the size of the park may reduce the benefit associated with the approval of
the proposed change in the tax for the non-local residents, while increasing the
net benefit associated with the rejection of the proposed tax change for the
local residents. In such a case, the proposed reform is of type (i) or type (ii).
(3) Suppose that the collected taxes are used to finance the park as well as to
compensate the local residents for the negative externalities. In such a case it
is possible that an increase in the proposed tax results in a decrease in the
benefit associated with the rejection of the proposed tax change for the local
residents while reducing the benefit associated with the approval of the
proposed tax change for the non-local residents. The reform can be of type (v).
Protection by Tariff: The study of trade policy determination has often applied rent
seeking or contest models, Hillman (1989), Mueller (2002). Consider, for example, a
local producer who wishes to be protected by a tariff on the import of the product he
produces. Such a protection creates rents for the producer, however, it reduces the
welfare of the consumers. This simple example is similar to the first example of
monopoly price regulation. The producer is the LB player and the representative of
the consumers is the HB player. An increase in the proposed tariff increases the
benefit of the consumers from disapproval of the proposed tariff change. It also