Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/59670
Authors: 
Loeper, Antoine
Year of Publication: 
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

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