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Federalism: Federalism is a system of government in which power is divided between a central government and regional governments. This division of power is often enshrined in a constitution, which outlines the responsibilities of each level of government. See also State.
Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

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Public Choice Theory on Federalism - Dictionary of Arguments

Parisi I 190
Federalism/Public choice theory/Farber: One theory of federalism, dating back at least to Tiebout, contemplates a competitive market, with the population as the consumers and local jurisdictions as sellers of policies. Under the right circumstances, this process could lead to an optimum alignment between individual preferences and local policies, but the conditions for this optimum turn out to be very restrictive (Hills, 2010(1), pp. 208-213).
Optimum: To obtain an optimum, there must be enough jurisdictions to provide all of the combinations of public policies desired by members of the public, but the jurisdictions must be large enough to avoid spillover effects and to provide employment opportunities for those seeking to live there. In addition, the public needs complete information about local policies across all the regimes, so as to allow informed choice.(…) for instance, it is hard to find states with low taxes, permissive rules on abortion, strong environmental regulations, and draconian criminal penalties.*
Decentralization: A more fundamental problem is that the exit and voice arguments support
decentralization, but they do not explain why decentralization needs to be constitutionally entrenched. For instance, state governments may obtain many of these benefits by legislatively delegating power to local governments. Even at the national level, the federal government does not preempt all state laws even when it has the power to do so, apparently preferring to allow local diversity. >Constitutional structures/Public choice theory.
Discrimination: In some circumstances, geographic regions might correspond with persistent economic or cultural divisions, so constitutional federalism could prevent a persistent national majority from oppressing a local minority. In that situation, federalism solves a discrimination problem.
Equilibrium/majority/minorities: Unless the minority group is somehow politically isolated from the majority group, however, it is hard to see how exploitation of geographic regions could be a stable equilibrium. The losers could upset the majority coalition by offering better terms to some subgroup to peel them away from the coalition.
Centralization: An alternative theory is that national politicians have an incentive to overexpand the power of the central government. But this theory requires an explanation of why politicians would want to expand their power, particularly on controversial issues or unpopular measures like raising taxes, rather than leaving those issues to local officials. For instance, this theory of federalism is in tension with the view that legislators delegate too much power to administrators, since the same arguments would often support delegation by national legislators to state governments (Levinson, 2005)(3).
Public choice theory: public choice does offer some striking arguments for decentralization, but does not provide a satisfying explanation for entrenchment of decentralization through constitutional federalism, except in limited circumstances.

* For a thorough review of these models and their limitations, see pp. 186-202 of Mueller (2003)(2).

1. Hills, R. M. (2010) "Federalism and Public Choice," in D. A. Farber and A. J. O'Connell, eds.
Research Handbook on Public Choice and Public Law, 207-233. Northampton, MA: Edward Elgar.
2. Mueller, D. C. (2003). Public Choice 111. Cambridge: Cambridge University Press.
3. Levinson, D. J. (2005). "Empire-Building Government in Constitutional Law." Harvard Law
Review 118:916-972.

Farber, Daniel A. “Public Choice Theory and Legal Institutions”. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Public Choice Theory
Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017

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