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Centralization vs. Decentralization: A Principal‐Agent Analysis

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  • MARIANO TOMMASI
  • FEDERICO WEINSCHELBAUM

Abstract

The decision to allocate policy jurisdictions to different levels of government is related to a number of trade‐offs between the advantages and disadvantages of centralized versus decentralized provision of public services. A trade‐off central to many discussions is that between the internalization of externalities under centralization versus an “accountability” advantage of decentralization. In this paper we formalize this trade‐off in the context of a class of principal–agent models known as common agency.

Suggested Citation

  • Mariano Tommasi & Federico Weinschelbaum, 2007. "Centralization vs. Decentralization: A Principal‐Agent Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 369-389, April.
    • Handle: RePEc:bla:jpbect:v:9:y:2007:i:2:p:369-389
    DOI: 10.1111/j.1467-9779.2007.00311.x
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    References listed on IDEAS

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    1. Meseguer Yebra, Covadonga, 2000. "Learning and economic policy choices with an application to IMF agreements," ISER Working Paper Series 2000-02, Institute for Social and Economic Research.
    2. Mariano Tommasi & Federico Weinschelbaum, 2007. "Principal-Agent Contracts under the Threat of Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(3), pages 379-393, September.
    3. Bardhan, Pranab & Mookherjee, Dilip, 1998. "Expenditure Decentralization and the Delivery of Public Services in Developing Countries," Center for International and Development Economics Research (CIDER) Working Papers 233623, University of California-Berkeley, Department of Economics.
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