Political Decentralization and Policy Experimentation

  • Cai H
  • Treisman D
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Since Justice Brandeis’ 1932 remark 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 underlying this claim, using a simple model of voting in centralized and decentralized democracies. We find the electoral logic suggests precisely 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. April

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  • Hongbin Cai

  • Daniel Treisman

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