On the Incentives to Experiment in Federations
Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized—due to the existence of a horizontal information externality—by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal o?ce and emphasizes that such competition plays an important role in shaping the incentives for experimentation. For, in this case, political actors use the innovative policies to signal ability to the electorate. This e?ect may o?set the e?ect that arises from the incentive to free ride, and so a federal system may generate more innovation than a unitary one.
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- Rincke, Johannes, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," ZEW Discussion Papers 05-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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0111, Exeter University, Department of Economics.
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- Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
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