Trade-offs in Centralizing/Decentralizing Governance: the Impact of Populations’ Characteristics

La Chaire Recherche

Auteur(s) Eric BROUSSEAU
Type de publication Working paper

GovReg Working Paper series | Issue 2019/10

This paper proposes a framework for analyzing governance in terms of centralization versus decentralization of the provision of an order to a given community. This is an essential trade- off behind many issues related to the organization of the institutions that frame either political activities or the economy. We systematically analyze how the level of centralization impacts on the costs of governance, i.e., the costs of establishing rules and ensuring compliance. We show that scale and scope effects, cognitive biases as well as interdependencies tend to favor centralization. These positive effects are balanced by maladaptions to local specificities, private capture and information costs. Highlighting the cost function of governance allows us to identify four characteristics of transaction grids characterizing the nature of collective coordination problems in a given population. Two of them refer to the characteristics of the population (its size, and the heterogeneity among individuals). The two others (clusterization and interconnectedness) describe the topology of the relational networks among members of this population. We show how these characteristics should impact the choice of a governance level.


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