Coordination in heterogeneous federal systems Articles uri icon

publication date

  • August 2011

start page

  • 900

end page

  • 912

issue

  • 7-8

volume

  • 95

International Standard Serial Number (ISSN)

  • 0047-2727

Electronic International Standard Serial Number (EISSN)

  • 1879-2316

abstract

  • We compare centralized and decentralized policy making in a federation in which policy heterogeneity is inherently costly and preferences vary across jurisdictions: all jurisdictions agree that some harmonization is desirable but no one agrees on the direction of harmonization. This type of collective choice problem arises when members of a federal system have to coordinate nonbudgetary policies such as laws, regulations, standards, or diplomatic policies. Contrary to the common wisdom, decentralization becomes optimal when coordination becomes very important. When coordination costs are symmetric, decentralization dominates centralization irrespective of the magnitude of externalities and the heterogeneity of preferences. In the case of discontinuous network effects, standardization never Pareto dominates decentralization

keywords

  • federalism; decentralization; coordination; externality; reciprocality; harmonization; law; regulation