Contractual Federalism and Strategy-proof Coordination
This paper takes a mechanism design approach to federalism and assumes that local preferences are the private information of local jurisdictions. Contractual federalism is defined as a strategy-proof contract among the members of the federation supervised by a benevolent but not omniscient federal authority. We show that even if the size of the information to be elicited is minimal, the incentive compatibility constraint has a bite in terms of flexibility and welfare. Strategy-proof and efficient federal mechanisms are necessarily uniform. There exists inefficient and non-uniform strategy-proof mechanisms, but they are socially worse than non cooperative decentralization. Federal mechanisms which are neutral and robust to coalition manipulations are equivalent to voting rules on uniform policies.
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- Barbera, Salvador & Sonnenschein, Hugo & Zhou, Lin, 1991.
"Voting by Committees,"
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"Decentralizing Public Services: What can we learn from the Theory of the Firm?,"
ULB Institutional Repository
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