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Federalism as a Commitment to Preserving Market Incentives

  • Yingyi Qian
  • Barry R. Weingast

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
Date of revision:
Handle: RePEc:wop:stanec:97042
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  8. Andrei Shleifer, 1996. "Government in Transition," Harvard Institute of Economic Research Working Papers 1783, Harvard - Institute of Economic Research.
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  10. Mathias Dewatripont & Eric Maskin, 2004. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9605, ULB -- Universite Libre de Bruxelles.
  11. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
  12. 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.
  13. McKinnon, Ronald I., 1995. "Intergovernmental competition in Europe with and without a common currency," Journal of Policy Modeling, Elsevier, vol. 17(5), pages 463-478, October.
  14. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-58, May.
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  18. 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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