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On the Incentives to Experiment in Federations

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  • Christos Kotsogiannis

    (Department of Economics, University of Exeter)

  • Robert Schwager

    (Georg-August-Universitat Gottingen and Zentrum fur Europaische Wirtschaftsforschung Mannheim)

Abstract

Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized—due to the existence of a horizontal information externality—by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal o?ce and emphasizes that such competition plays an important role in shaping the incentives for experimentation. For, in this case, political actors use the innovative policies to signal ability to the electorate. This e?ect may o?set the e?ect that arises from the incentive to free ride, and so a federal system may generate more innovation than a unitary one.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0507.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0507.

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Date of creation: Sep 2005
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Handle: RePEc:exe:wpaper:0507

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Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Keywords: Fiscal federalism; policy innovation; policy experimentation.;

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References

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  1. Rincke, Johannes, 2006. "Competition in the public school sector: Evidence on strategic interaction among US school districts," Journal of Urban Economics, Elsevier, vol. 59(3), pages 352-369, May.
  2. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
  3. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  4. Rincke, Johannes, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," ZEW Discussion Papers 05-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Kollman, Ken & Miller, John H & Page, Scott E, 2000. "Decentralization and the Search for Policy Solutions," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 102-28, April.
  6. Christos Kotsogiannis & Robert Schwager, 2001. "Political Uncertainty and Policy Innovation," Discussion Papers 0111, Exeter University, Department of Economics.
  7. Strumpf, Koleman S, 2002. " Does Government Decentralization Increase Policy Innovation?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(2), pages 207-41.
  8. Robert P. Inman & Daniel L. Rubinfeld, 1997. "Rethinking Federalism," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 43-64, Fall.
  9. Johannes Rincke, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," Public Economics 0511011, EconWPA.
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Citations

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Cited by:
  1. Erdogdu, E., 2012. "A cross country analysis of electricity market reforms: potential contribution of New Institutional Economics," Cambridge Working Papers in Economics 1232, Faculty of Economics, University of Cambridge.
  2. Johannes Rincke, 2009. "Yardstick competition and public sector innovation," International Tax and Public Finance, Springer, vol. 16(3), pages 337-361, June.
  3. Andreas Wagener, 2013. "Tax Competition, Relative Performance, And Policy Imitation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1251-1264, November.
  4. Erdogdu, Erkan, 2013. "Essays on Electricity Market Reforms: A Cross-Country Applied Approach," MPRA Paper 47139, University Library of Munich, Germany.
  5. Millimet, Daniel L., 2013. "Environmental Federalism: A Survey of the Empirical Literature," IZA Discussion Papers 7831, Institute for the Study of Labor (IZA).
  6. Dreher, Axel & Fischer, Justina AV, 2007. "Decentralization as a disincentive for transnational terror? An empirical test," Working Paper Series in Economics and Finance 686, Stockholm School of Economics.
  7. Axel Dreher & Justina A. V. Fischer, 2010. "Government Decentralization As A Disincentive For Transnational Terror? An Empirical Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 981-1002, November.
  8. Axel Dreher, 2006. "Power to the People? The Impact of Decentralization on Governance," KOF Working papers 06-121, KOF Swiss Economic Institute, ETH Zurich.
  9. Rincke, Johannes, 2007. "Policy diffusion in space and time: The case of charter schools in California school districts," Regional Science and Urban Economics, Elsevier, vol. 37(5), pages 526-541, September.
  10. Bjørnskov, Christian & Drehe, Axel & Fischer, Justina A.V., 2008. "On decentralization and life satisfaction," Economics Letters, Elsevier, vol. 99(1), pages 147-151, April.
  11. Axel Dreher & Justina Fischer, 2008. "Decentralization as a disincentive for transnational terror? System stability versus government efficiency: an empirical test," TWI Research Paper Series 41, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  12. Amihai Glazer & Hiroki Kondo, 2007. "Innovation and Imitation Across Jurisdictions," Working Papers 070807, University of California-Irvine, Department of Economics.
  13. Johannes Rincke, 2006. "Policy innovation in local jurisdictions: Testing for neighborhood influence in school choice policies," Public Choice, Springer, vol. 129(1), pages 189-200, October.

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