Quarterly Journal of Political Science > Vol 4 > Issue 1

Political Decentralization and Policy Experimentation

Hongbin Cai, Guanghua School of Management, Peking University, Daniel Treisman, Department of Political Science, University of California, Los Angeles, USA, treisman@polisci.ucla.edu
 
Suggested Citation
Hongbin Cai and Daniel Treisman (2009), "Political Decentralization and Policy Experimentation", Quarterly Journal of Political Science: Vol. 4: No. 1, pp 35-58. http://dx.doi.org/10.1561/100.00008039

Published: 19 Mar 2009
© 2009 H. Cai and D. Treisman
 
Subjects
Federalism,  Formal modelling,  Voting theory,  Public policy
 
Keywords
H11H70H77H83D72D78
DecentralizationInnovationPolicy experimentsVotingInformation
 

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In this article:
The Basic Model
Comparing Centralization and Decentralization
Extensions
Discussion
Conclusion
Appendix
References

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.

DOI:10.1561/100.00008039