Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism

Posted: 14 Jan 2002

See all articles by Koleman S. Strumpf

Koleman S. Strumpf

Wake Forest University, Department of Economics

Felix Oberholzer-Gee

Harvard Business School, Strategy Unit

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Abstract

The economic theory of federalism is largely built around the premise that more heterogeneous preferences result in more decentralized policy making. Despite its prominence and importance, this central tenet of economic federalism has never been empirically evaluated. This paper presents the first formal test of the link between preference heterogeneity and endogenous policy decentralization using liquor control in the United States over the period 1934-70 as a case study. The results are reassuring: States with more heterogeneous preferences are more likely to decentralize liquor control and allow for local government decision making.

Suggested Citation

Strumpf, Koleman S. and Oberholzer-Gee, Felix, Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism. Available at SSRN: https://ssrn.com/abstract=295077

Koleman S. Strumpf

Wake Forest University, Department of Economics ( email )

PO Box 7505
Winston-Salem, NC 27109
United States
336-758-5410 (Phone)

HOME PAGE: http://users.wfu.edu/strumpks

Felix Oberholzer-Gee (Contact Author)

Harvard Business School, Strategy Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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