Table 1
Decentralised or centralised decision-making in federal systems.
| BENEFITS OF DECENTRALISATION | BENEFITS OF CENTRALISATION |
|---|---|
| 1. Allows individual states in a federal system to meet the divergent preferences of their citizens | 1. Allows for the internalisation of interstate externalities within federal systems |
| 2. Solves problems of information asymmetry between different levels of government in a federal system | 2. May enable states within federal systems to benefit from scale economies through lower transaction costs |
| 3. Allows states in a federal system to experiment with governance policies, thereby promoting competition in the learning process of numerous states dealing with similar problems | 3. Can reduce the risk of destructive competition between states in a federal system |