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Contractual Federalism and Strategy-proof Coordination

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  • Antoine Loeper

Abstract

This paper takes a mechanism design approach to federalism and assumes that local preferences are the private information of local jurisdictions. Contractual federalism is defined as a strategy-proof contract among the members of the federation supervised by a benevolent but not omniscient federal authority. We show that even if the size of the information to be elicited is minimal, the incentive compatibility constraint has a bite in terms of flexibility and welfare. Strategy-proof and efficient federal mechanisms are necessarily uniform. There exists inefficient and non-uniform strategy-proof mechanisms, but they are socially worse than non cooperative decentralization. Federal mechanisms which are neutral and robust to coalition manipulations are equivalent to voting rules on uniform policies.

Suggested Citation

  • Antoine Loeper, 2008. "Contractual Federalism and Strategy-proof Coordination," Discussion Papers 1521, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1521
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    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1521.pdf
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    References listed on IDEAS

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    1. Antonio Estache & J. Cremer & Paul Seabright, 1996. "Decentralizing Public Services: What can we learn from the Theory of the Firm?," ULB Institutional Repository 2013/44016, ULB -- Universite Libre de Bruxelles.
    2. Barbera, Salvador & Sonnenschein, Hugo & Zhou, Lin, 1991. "Voting by Committees," Econometrica, Econometric Society, vol. 59(3), pages 595-609, May.
    3. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
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    Cited by:

    1. Loeper, Antoine, 2011. "Coordination in heterogeneous federal systems," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 900-912, August.

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    More about this item

    Keywords

    Federalism; Asymmetric Information; Strategy-proofness; Externality; Coordination; Uniformity. JEL Classification Numbers: D71; D72; D82; H77;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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