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Internal Organization in a Public Theory of the Firm: Toward a Coase-Oates Federalism Nexus


  • Garzarelli, Giampaolo


This paper anatomizes how the theory of internal organization of the firm relates to that of internal organization of government. This broad issue is approached by narrowing matters down to a specific type of internal organization of government: fiscal federalism. The paper introduces elements for a public theory of the firm by theoretically combining organizational and federalist insights – Ronald Coase with Wallace Oates. It shows how there are vertical and horizontal transaction cost problems in both the ex ante moment of decentralized public sector organizational design and the ex post moment of organizational adaptation. These problems embed normative and positive considerations that previous organizational theories of federalism fail to consider, and that earlier theories of federalism to some extent acknowledge but fail to develop organizationally. A subsidiary point that emerges is that more effort should be directed to exploring the ex ante moment in explicit organizational design terms. To try to jump start the explorative effort, the paper also alludes to one promising set of design principles: modularity.

Suggested Citation

  • Garzarelli, Giampaolo, 2018. "Internal Organization in a Public Theory of the Firm: Toward a Coase-Oates Federalism Nexus," MPRA Paper 86955, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:86955

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    Coase-Oates nexus; Comparative institutional analysis; Ex ante and ex post fiscal federalism; Intergovernmental transaction costs; Modular near-decomposition.;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities


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