Experimentation in Federal Systems

67 Pages Posted: 1 Nov 2013

See all articles by Steven Callander

Steven Callander

Stanford Graduate School of Business

Bård Harstad

University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2013

Abstract

We present a model where heterogeneous districts choose both whether to experiment and the policies to experiment with. Since districts learn from each other, the first-best requires that policy experiments converge so that innovations are useful also for neighbors. However, the equilibrium implies the reverse - policy divergence - since each district uses its policy choice to discourage free-riding. We then study a clumsy central government that harmonizes final policy choices. This progressive concentration of power induces a policy tournament that can increase the incentive to experiment and encourage policy convergence. We derive the best political regime as well as the optimal levels of heterogeneity, transparency, prizes, and intellectual property rights.

Suggested Citation

Callander, Steven and Harstad, Bard, Experimentation in Federal Systems (October 2013). NBER Working Paper No. w19601, Available at SSRN: https://ssrn.com/abstract=2348510

Steven Callander (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Bard Harstad

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

HOME PAGE: http://www.sv.uio.no/econ/english/people/aca/bardh/

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