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Federalism as a Commitment to Reserving Market Incentives

  • Yingyi Qian
  • Barry R. Weingast

The authors advance a new perspective in the study of federalism. Their approach views federalism as a governance solution of the state to credibly preserving market incentives. Market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures. The salient features of federalism--decentralization of information and authority and interjurisdictional competition--help provide credible commitment or these purposes. In addition, the authors suggest that some federalism are self-sustaining.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.4.83
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 11 (1997)
Issue (Month): 4 (Fall)
Pages: 83-92

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Handle: RePEc:aea:jecper:v:11:y:1997:i:4:p:83-92
Note: DOI: 10.1257/jep.11.4.83
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  2. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 541-55, October.
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  12. Schmidt, Klaus M., 1996. "The costs and benefits of privatization: An incomplete contracts approach," Munich Reprints in Economics 19773, University of Munich, Department of Economics.
  13. McKinnon, Ronald I., 1995. "Intergovernmental competition in Europe with and without a common currency," Journal of Policy Modeling, Elsevier, vol. 17(5), pages 463-478, October.
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  16. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 149-185.
  17. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
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