On the Incentives to Experiment in Federations

Christos Kotsogiannis and Robert Schwager
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Robert Schwager: Georg-August-Universitat Gottingen and Zentrum fur Europaische Wirtschaftsforschung Mannheim

No 507, Discussion Papers from University of Exeter, Department of Economics

Abstract: Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized—due to the existence of a horizontal information externality—by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal o?ce and emphasizes that such competition plays an important role in shaping the incentives for experimentation. For, in this case, political actors use the innovative policies to signal ability to the electorate. This e?ect may o?set the e?ect that arises from the incentive to free ride, and so a federal system may generate more innovation than a unitary one.

Keywords: Fiscal federalism; policy innovation; policy experimentation. (search for similar items in EconPapers)
JEL-codes: H77 R59 (search for similar items in EconPapers)
Date: 2005-09
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Citations: View citations in EconPapers (5)

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https://exetereconomics.github.io/RePEc/dpapers/DP0507.pdf (application/pdf)

Related works:
Journal Article: On the incentives to experiment in federations (2006)
Working Paper: On the Incentives to Experiment in Federations (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:0507

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