Why does Centralisation Fail to Internalise Policy Externalities?

Robert Dur () and Hein Roelfsema ()

No 04-09, Working Papers from Utrecht School of Economics

Abstract: We provide an explanation for why centralisation of political decision making results in overspending in some policy domains, whereas too low spending persists in others. We study a model in which delegates from jurisdictions bargain over local public goods provision. If all of the costs of public goods are shared through a common budget, policy makers delegate bargaining to `public good lovers', resulting in overprovision of public goods. If a sufficiently large part of the costs can no be shared, underprovision persists because policy makers delegate bargaining to `conservatives'. We derive financing rules that eliminate the incentives for strategic delegation.

Keywords: Centralised decision making; strategic delegation; financing rules. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pol
Date: 2004-01
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Journal Article: Why does centralisation fail to internalise policy externalities? (2005)
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