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Political Decentralization and Policy Experimentation



Author(s): Hongbin Cai;Daniel Treisman

Source:
    Journal:Quarterly Journal of Political Science
    ISSN Print:1554-0626,  ISSN Online:1554-0634
    Publisher:Now Publishers
    Volume 4 Number 1,
Pages: 24 (35-58)
DOI: 10.1561/100.00008039

Abstract:

Since 1932, when Justice Louis Brandeis remarked that in a federal system states can serve as "laboratories" of democracy, political decentralization has been thought to stimulate policy experimentation. We reexamine the political economy behind this belief, using a simple model of voting in centralized and decentralized democracies. We find that the electoral logic suggests the opposite conclusion: centralization usually leads to "too much" policy experimentation, compared to the social optimum, while decentralization leads to "too little." Three effects of centralization — an "informational externality," a "risk-seeking" effect, and a "risk-conserving" effect — account for the different outcomes.