Civil Conflict, Federalism and Strategic Delegation of Leadership

This article analyses negative externalities that policy makers in one region or group may impose upon the citizens of neighbouring regions or groups. These externalities may be material, but they may also be psychological (in the form of envy). The latter form of externality may arise from the production of "conspicuous" public goods. As a result, decentralized provision of conspicuous public goods may be too high. Potentially, a centralized legislature may internalize negative externalities. However, in a model with strategic delegation we argue that the median voter in each jurisdiction may anticipate a reduction in local public goods supply and delegates to a policymaker who cares more for public goods than she does herself. This last effect mitigates the expected benefits of policy centralization. The authors' theory is then applied to the setting of civil conflict, where they discuss electoral outcomes in Northern Ireland and Yugoslavia before and after significant institutional changes which affected the degree of centralization. These case studies provide support for the authors' theoretical predictions.