Geoscience Reference
In-Depth Information
(
−
r
)
3.
is the probability of the national elite winning in a decentral-
ized world. So when it goes to zero it always pays the national elite to
challenge the status quo.
4. There is a relationship between the cost of challenge and institutional
change. The closer is
1
μ
to 1, the smaller the cost of change; the smaller
, the lower the incentives for change.
5. Finally, expression (6) also captures the link between the system of rep-
resentation and the behavior of regional elites: if national politicians are
indifferent between challenging or not SQ1, that is if (6) is an equality
given the values of the parameters, then an increase in the importance of
national elections for local leaders (
) requires an increase in the prob-
ability that regional elites accepts a proposal to centralize (
α
)forthe
equality to hold.
(ϕ
n
−
ϕ
r
)λ
r
r
β
+
(
n
−
r
)φ
1
≤
(7)
(
1
−
β)
(
1
−
ϕ
n
)(
1
−
μ)λ
r
Under SQ2 (centralization), the regional leaders will pursue decentralization
if the right hand side term of (7) is greater than one. It follows then that:
1. A rise in
, the probability that the national level accepts decentralization,
increases the payoff of going for decentralization.
2. A rise in the top square bracket term measures exactly the expected
gain from decentralization (D) over centralization (C). So if
β
(ϕ
n
−
ϕ
r
)
=
(
n
−
r
)
=
0, it would never pay to change. Again, if the economic
geography in the region and the union are the same, there is no pressure
to challenge the status quo.
3.
is the probability that the regional elite wins in a centralized
world. So when it goes to zero it always pays the regional elite to chal-
lenge.
4. There is a relationship between the cost of challenge and institutional
change that is similar to that in SQ1. The closer is
(
1
−
ϕ
n
)
μ
to 1, the smaller the
, the lower the incentives for change.
5. Finally, expression (7) similarly captures the link between the system
of representation and the behavior of regional elites in a status quo of
centralization: if regional politicians are indifferent between challenging
or not SQ2, that is if (7) is an equality given the values of the parameters,
then an increase in the importance of national elections for local leaders
(
cost of change; the smaller
μ
) requires a decrease in the probability that national elites accepts a
proposal to decentralize (
β
) for the equality to hold.
These results speak directly to the research questions at the core of this topic.
They highlight two important mechanisms underpinning the origin of fiscal
structures:
1. The first one concerns the link between economic geography and citizens'
institutional preferences. As regional economies grow apart, so do the
