Uniform or Different Policies
Working paper
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http://hdl.handle.net/11250/2394678Utgivelsesdato
2004Metadata
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Originalversjon
Working Paper, NUPI nr 661. NUPI, 2004Sammendrag
I analyse the negotiation between two countries, or regions, that are trying to
make an agreement in order to internalize externalities. Local preferences are local
information, but reluctance to participate in the agreement is signaled by delay. Conditions
are derived for when it is efficient to restrict the attention to policies that are uniform across
regions - with and without side payments - and when it is optimal to forbid side payments
in the negotiations. While policy differentiation and side payments let the policy be tailed to
local conditions, they create conflicts between the regions and thus delay. If political
centralization implies uniformity, as is frequently assumed in the federalism literature, the
results describe when centralization outperforms decentralized cooperation. But the results
also provide a foundation for this uniformity assumption and characterize when it is likely
to hold.
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