Federal Directives, Local Discretion and the Majority Rule

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe consider a federation in which citizens determine by federal majority rule a discretionary policy space which partially restricts the sovereignty of member states.Citizens …rst vote on the size of the discretionary space (the degree of local discretion), and then on its location on the policy space (the federal directive). Finally, each state votes on its respective policy within the discretionary space. This federal mechanism allows voters to express directly their trade-o¤ between ‡exibility and policy harmonization.We show that at the voting equilibrium, the federal directive is negatively sensitive to the preferences of nonmedian voters. Moreover, the degree of local discretion is too limited and insu¢ ciently sensitive to the magnitude of externalities. Hence, the model shows that inadequate and excessively rigid federal interventions can emerge from a neutral and democratic decision process without agency costs or informational imperfections.JEL Classi…cation Numbers: H77, D72

A theory of (de)centralization

“…An alternative, political-economy, approach to some of the questions in this paper has been taken by Lockwood (2002), Besley and Coate (2003), Loeper (2013), and others. These papers present models where the central authority's decisions do not aim to be welfare maximizing, but rather are the outcome of an explicit voting or legislative decision-making process.…”