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Contractual Federalism and Strategy-proof Coordination

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  • Antoine Loeper
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    Abstract

    This paper takes a mechanism design approach to federalism and assumes that local preferences are the private information of local jurisdictions. Contractual federalism is defined as a strategy-proof contract among the members of the federation supervised by a benevolent but not omniscient federal authority. We show that even if the size of the information to be elicited is minimal, the incentive compatibility constraint has a bite in terms of flexibility and welfare. Strategy-proof and efficient federal mechanisms are necessarily uniform. There exists inefficient and non-uniform strategy-proof mechanisms, but they are socially worse than non cooperative decentralization. Federal mechanisms which are neutral and robust to coalition manipulations are equivalent to voting rules on uniform policies.

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    Bibliographic Info

    Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1521.

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    Date of creation: Dec 2008
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    Handle: RePEc:nwu:cmsems:1521

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    Related research

    Keywords: Federalism; Asymmetric Information; Strategy-proofness; Externality; Coordination; Uniformity. JEL Classification Numbers: D71; D72; D82; H77;

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    1. Barbera, S. & Sonnenschein, H., 1988. "Voting By Quota And Committee," UFAE and IAE Working Papers 95-88, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Salvador Barbera & Hugo Sonnenschein & Lin Zhou, 1990. "Voting by Committees," Cowles Foundation Discussion Papers 941, Cowles Foundation for Research in Economics, Yale University.
    3. Antonio Estache & J. Cremer & Paul Seabright, 1996. "Decentralizing Public Services: What can we learn from the Theory of the Firm?," ULB Institutional Repository 2013/44016, ULB -- Universite Libre de Bruxelles.
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    Cited by:
    1. Loeper, Antoine, 2011. "Coordination in heterogeneous federal systems," Journal of Public Economics, Elsevier, vol. 95(7), pages 900-912.

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