Centralized decision making against informed lobbying

Thierry Verdier, Rafael Lima and Humberto Moreira ()

No 9199, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We re-address the tradeoff between centralized and decentralized decision making of local policies when policymakers are subject to capture by special interest groups. In particular, we consider the case where lobbies have private information about their ability to exert influence. We find a new informational effect in the political game under centralized structures that gives the policymaker additional bargaining power against lobbies. Thus, when compared to decentralization, centralization reduces capture, and is more likely to be welfare enhancing in the presence of information asymmetries. Then, we apply the model to the classical problem of local public goods provision and to the incentives towards the creation of customs unions agreements.

Keywords: Asymmetric information; Centralization; Custom unions; Lobbying; Public goods (search for similar items in EconPapers)
JEL-codes: D72 D82 F15 H41 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-cdm, nep-cta, nep-mic and nep-pol
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