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Economic Geography
SQ1: Decentralization (D)
SQ2: Centralization (C)
t:
National Elite
Regional Elite
Propose
Centralization
D
Propose
Decentralization
C
National
Elite
t+1:
Regional
Elite
α
(1- α )
β
(1- β )
Accept
(D to C)
Reject
(D)
Accept
(C to D)
Reject
(C)
FIGURE 2.1. The Political Process
structure of party competition by altering both the political space in the union
and the effective number of parties in specific regions.
These two channels are clearly important, but they do not require an addi-
tional parameter in the model. The effect of identity on preferences can be
partially captured, indirectly, through economic geography. The effect of iden-
tity on representation is implicit to the centripetal-centrifugal continuum: if
identity parties have a strong presence in the party system, representation is
more likely to be centrifugal. I shall revisit this point in Chapter 3 .
Figure 2.1 displays the two possible patterns of strategic interactions between
the two levels of government, as determined by the status quo. Under SQ1
the distributive conflicts associated with the geography of inequality emerge
when fiscal structures are decentralized (D). Under these circumstances, the
national elites evaluate whether to pursue centralization. If they opt not to,
the game ends. National elites operate under uncertainty. When they evaluate
the pursuit of centralization, they are not sure what the response of the regional
elites will be. Should national elites launch a proposal to move from a system
of fragmented solidarity to a system of fiscal integration, regional elites will
choose at t
+
1 between accepting (with probability
α
) or rejecting such move
(with probability 1
). This captures the fact that the national government
does not know the type of regional elite. It simply knows that there is an
α
α
probability that it will accept a change in the direction of centralization. After
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