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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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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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  1. Jiahua Che & Yingyi Qian, 1998. "Institutional Environment, Community Government, and Corporate Governance: Understanding China's Township-Village Enterprises," William Davidson Institute Working Papers Series 59, William Davidson Institute at the University of Michigan.
  2. David E. Wildasin, 2001. "Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations," Public Economics 0112002, EconWPA.
  3. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  4. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
  5. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  6. Paul Milgrom and John Roberts., 1987. "Bargaining and Influence Costs and the Organization of Economic Activity," Economics Working Papers 8731, University of California at Berkeley.
  7. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier.
  8. Courant, Paul N. & Rubinfeld, Daniel L., 1981. "On the welfare effects of tax limitation," Journal of Public Economics, Elsevier, vol. 16(3), pages 289-316, December.
  9. Timothy Frye & Andrei Shleifer, 1996. "The Invisible Hand and the Grabbing Hand," NBER Working Papers 5856, National Bureau of Economic Research, Inc.
  10. Shleifer, Andrei, 1997. "Government in transition," European Economic Review, Elsevier, vol. 41(3-5), pages 385-410, April.
  11. Mathias Dewatripont & Eric Maskin, 2004. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9605, ULB -- Universite Libre de Bruxelles.
  12. 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.
  13. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-62, December.
  14. Robert H. Bates & Avner Greif & Margaret Levi & Jean-Laurent Rosenthal, 1998. "Analytic Narratives," Economics Books, Princeton University Press, edition 1, volume 1, number 6355.
  15. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
  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. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  18. Romano, Roberta, 1985. "Law as a Product: Some Pieces of the Incorporation Puzzle," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(2), pages 225-83, Fall.
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