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Coordination in heterogeneous federal systems

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  • Loeper, Antoine

Abstract

We compare centralized and decentralized policy making in a federation in which policy heterogeneity is inherently costly and preferences vary across jurisdictions: all jurisdictions agree that some harmonization is desirable but no one agrees on the direction of harmonization. This type of collective choice problem arises when members of a federal system have to coordinate nonbudgetary policies such as laws, regulations, standards, or diplomatic policies. Contrary to the common wisdom, decentralization becomes optimal when coordination becomes very important. When coordination costs are symmetric, decentralization dominates centralization irrespective of the magnitude of externalities and the heterogeneity of preferences. In the case of discontinuous network effects, standardization never Pareto dominates decentralization.

Suggested Citation

  • Loeper, Antoine, 2011. "Coordination in heterogeneous federal systems," Journal of Public Economics, Elsevier, vol. 95(7), pages 900-912.
    • Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:900-912
    DOI: 10.1016/j.jpubeco.2011.01.010
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    More about this item

    Keywords

    Federalism; Decentralization; Coordination; Externality; Reciprocality; Harmonization; Law; Regulation;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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