Geoscience Reference
In-Depth Information
the decision by the regional elites, the game ends either with an institutional
change (D
→
C) or with the preservation of the status quo in the aftermath of
a conflict between national and regional elites. As a result of such conflict, the
electoral chances of the national government (
q
n
) are reduced by a factor of
μ
=
(
1
1.
The sequencing of the game has a similar structure under SQ2, that is to
say, when distributive tensions become politically relevant in a context of
fiscal centralization. The mover at t is now the regional elite, and must decide
whether to pursue fiscal decentralization (D
1
−
ε
)
with
ε>
C). As before, it does so with
some uncertainty about the response by the national elite at time t
→
+
1 (as
captured by probabilities
). A potential conflict between regional
and national elites also reduces the electoral chances of the first mover (
p
r
)by
a factor of
β
and 1
−
β
1
.
Solving the model requires an understanding of the incentives of the first
movers to challenge the status quo given the expected response of the other
party level. Accordingly, the decision rule for first movers is
1
:
μ
=
(
1
−
ε
)
For the national elite under SQ1 (decentralization) to pursue centralization if:
)
≤
α
U
n
(
)
+
(
−
α)
U
n
(
)
U
n
(
D
C
1
D
|
challenge
(4)
For the regional elite under SQ2 (centralization) to pursue decentralization:
)
≤
β
U
r
(
)
+
(
−
β)
U
r
(
)
U
r
(
C
D
1
C
|
challenge
(5)
As shown in the Appendix, solving both expressions produces the condi-
tions under which either will pursue a change in the organization of fiscal
structures:
(
r
−
n
)λ
r
n
+
(
−
)(ϕ
r
−
ϕ
n
)χ
α
1
1
≤
(6)
(
1
−
α)
(
1
−
r
)(
1
−
μ)λ
n
Under SQ1 (decentralization), the national elite will pursue centralization if the
right-hand side term of (6) is greater than one. Otherwise, it has no incentive
to do so. A number of insights follow for the expression above:
α
1. A rise in
, the probability that the regional elite accepts centralization,
increases the payoff of going for centralization.
2. A rise in the top square bracket term measures exactly the expected
gain from centralization (C) over decentralization (D). So if
(
r
−
n
)
=
0 it would never pay to change. In other words, if the eco-
nomic geography in the region and the union are the same, there is no
pressure/incentive for institutional change.
(ϕ
r
−
ϕ
n
)
=
1
A full formal development of the decision by the national government to pursue centralization
under SQ1 and of the decision of the regional government to pursue decentralization under SQ2
is available in Appendix A.
