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Title:Contractual federalism and strategy-proof coordination PDF Logo
Authors:Loeper, Antoine
Issue Date:2008
Series/Report no.:Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1521
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.
Subjects:Federalism
Asymmetric Information
Strategy-proofness
Externality
Coordination
Uniformity
JEL:D71
D72
D82
H77
Document Type:Working Paper
Appears in Collections:Discussion Papers, Kellogg School of Management, Northwestern University

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