Higher Education and Firms: on the interaction between research and regional policies

The European national governments have delegated a series of competencies to a central agency called the European Commission. Among them, two are considered in this paper: research policy and regional development. However, delegating those competencies to a central agency does not prevent the national governments to still be active in those fields. Here, we model and discuss how the level of commitment of a central authority toward poor regions affects the design of the best decision process. We explore cases of full centralization and full decentralization, and situations where the two levels of government are allowed to take decisions, either simultaneously or sequentially. In that latter case we make a distinction between a situation where the central agency decides first like in most federations, and a situation where it decides second, then being an agent of the national governments, a setting especially relevant for the European Union. We show in particular that, when the degree of commitment of the centre is high, assignment of redistributive competencies to both levels of power is a better proxy for centralization than decentralization. Additionally, the poorer region may find its best interest in an institutional design where regions decide first