OPTIMALITY, FREE MOBILITY, AND THE REGIONAL AUTHORITY IN A FEDERATION

This paper examines the efficiency properties of a federation characterized by strategically competing regions and freely mobile homogeneous individuals. Analyses of this economy have concluded that achieving a Pareto optimal will require intervention by a national authority. This paper makes one basic point: the Nash equilibrium of regional authority behavior is Pareto optimal. The implication is that there is no role for a national authority in either providing interregional transfers or correcting for decentralized provision of public goods. The Nash equilibrium involves Samuelson public goods provision, and regions purchasing preferred population distributions with optimal interregional transfers. © 1990.