Optimal Territorial Scope of Laws
F. Parisi, V. Fon, SOURCES OF LAW: THE ECONOMICS OF LAWMAKING, Oxford University Press, 2009
24 Pages Posted: 21 Nov 2008
Date Written: November 19, 2008
In this paper we analyze the factors that should be considered when allocating a given policy function at a particular level of government and how these factors affect the growth and evolution of multi-level governments. After discussing the interplay of economies of scale, economies of scope, and heterogeneity of preferences in determining the optimal level of legal intervention, we show that the subsidiarity principle can have mixed effects as a firewall against progressive centralization. Our economic model of subsidiarity reveals that once some functions become centralized, further centralization becomes easier and often unavoidable. Contrary to its intended function, a piecemeal application of the subsidiarity principle can trigger a path-dependent avalanche of centralization, turning subsidiarity into a self-defeating statement of principle.
Keywords: Subsidiarity, Rule Competition, Centralization, Economies of Scope
JEL Classification: D70, H73, K33, P16
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