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Discussion Paper Details

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Title: Centralized decision making against informed lobbying

Author(s): Rafael Costa Lima, Humberto Moreira and Thierry Verdier

Publication Date: October 2012

Keyword(s): Asymmetric information, Centralization, custom unions, lobbying and public goods

Programme Area(s): International Trade and Regional Economics and Public Economics

Abstract: We re-address the tradeoff between centralized and decentralized decision making of local policies when policymakers are subject to capture by special interest groups. In particular, we consider the case where lobbies have private information about their ability to exert influence. We find a new informational effect in the political game under centralized structures that gives the policymaker additional bargaining power against lobbies. Thus, when compared to decentralization, centralization reduces capture, and is more likely to be welfare enhancing in the presence of information asymmetries. Then, we apply the model to the classical problem of local public goods provision and to the incentives towards the creation of customs unions agreements.

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Bibliographic Reference

Costa Lima, R, Moreira, H and Verdier, T. 2012. 'Centralized decision making against informed lobbying'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9199