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Federalism as a Commitment to Preserving Market Incentives

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  • Yingyi Qian
  • Barry R. Weingast

Abstract

Fall, 1997 Journal of Economic Perspectives, Volume 11, Number 4, pp.83-92, Fall 1997 We advance a new perspective in the study of federalism. Our approach views federalism as a governance solution of the state to credibly preserving market incentives. Market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures. The salient features of federalism — decentralization of information and authority and inter-jurisdiction competition — help provide credible commitment for these purposes. In addition, we discuss factors relevant for sustaining federalism.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 97042.

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Date of creation: 1997
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Handle: RePEc:wop:stanec:97042
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Find related papers by JEL classification:
  • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
  • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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  15. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
  16. Yingyi Qian & Barry R. Weingast, 1996. "China's transition to markets: market-preserving federalism, chinese style," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 149-185.
  17. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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