Constitutional Design and Regional Favoritism
Using a principal‐agent framework, this paper analyzes a public good provision problem in which a central government tries to favor one of the regions for political reasons. We show how this favoritism leads to some distortions of the allocation scheme compared to the benevolent case. We then study the effects of decentralization, modeled here by giving an outside option to the minority region. We exhibit a trade‐off between rent and equality and study the allocative and redistributive effects of a decentralized setting.
SAND-ZANTMAN, W. (2002). Constitutional Design and Regional Favoritism. Journal of Public Economic Theory, 4(1), pp. 71-93.