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Why does Centralisation fail to internalise Policy Externalities?

Author

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  • Robert A.J. Dur

    (Erasmus University Rotterdam)

  • Hein J. Roelfsema

    (Utrecht University)

Abstract

We provide an explanation why centralisation of political decision makingresults in overspending in some policy domains, whereas too low spending persists in others.We study a model in which delegates from jurisdictions bargain over local public goods provision.If all of the costs of public goods are shared through a common budget, policy makersdelegate bargaining to ‘public good lovers’, resulting in overprovision of public goods. If asufficiently large part of the costs can not be shared, underprovision persists because policymakers delegate bargaining to ‘conservatives’. We derive financing rules that eliminate theincentives for strategic delegation. See publication in Public Choice , 2005, 122(3-4), 395-416.

Suggested Citation

  • Robert A.J. Dur & Hein J. Roelfsema, 2002. "Why does Centralisation fail to internalise Policy Externalities?," Tinbergen Institute Discussion Papers 02-056/3, Tinbergen Institute, revised 11 Nov 2003.
    • Handle: RePEc:tin:wpaper:20020056
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    More about this item

    Keywords

    Centralised decision making; strategic delegation; financing rules.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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