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 or political reasons. We show how this favoritism leads the government to distort the allocation scheme compared to the benevolent case. We then study the effects of decentralization, modeled by here by giving some outside options to the regions. We exhibit a tradeoff between rent and equality and put in question the general idea that decentralization could be a solution to regional favoritism.PUBLIC GOODS ; SOCIAL CHOICE ; CONTRACTS