Federations, Constitutions, and Political Bargaining

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Federations, Constitutions, and Political Bargaining

Author Info

Anke S. Kessler () (Simon Fraser University)
Christoph Luelfesmann () (Simon Fraser University)
Gordon M. Myers () (Simon Fraser University)

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Abstract

The paper studies a world where a region provides essential inputs for the successful implementation of a local public policy project with spill-overs, and where bargaining between different levels of government may ensure efficient decision making ex post. We ask whether the authority over the public policy measure should rest with the local government or be centralized, allowing financial relationships within the federation to be designed optimally. We show that centralization is always dominant when governments are benevolent, and that both governance structures are otherwise inefficient as long as political bargaining is disregarded. With bargaining, however, the first best can often be achieved under decentralization, but not under centralization. At the root of the result is the alignment of decision making over both essential inputs and final project size under decentralization.

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Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp07-19.

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Length: 40
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:sfu:sfudps:dp07-19

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-12-01 (All new papers)
NEP-CDM-2007-12-01 (Collective Decision-Making)
NEP-LAW-2007-12-01 (Law & Economics)
NEP-PBE-2007-12-01 (Public Economics)
NEP-POL-2007-12-01 (Positive Political Economics)
NEP-PPM-2007-12-01 (Project, Program & Portfolio Management)

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This page was last updated on 2009-11-19.

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