19
could be improved through design of its institutions to affect the incentive environment of
the governments. This insight leads to the book’s second contribution: while no institu-
tional safeguard is sufficient to improve the union’s prosperity, institutions work together
to improve compliance with the distribution of authority, thereby boosting the union’s per-
formance. The second half of this book develops criteria for evaluating the efficiency of a
network of institutional safeguards, based on their coverage of the internal sources of non-
compliance, the redundancy of this coverage, and the complementarity of response, exploiting
the additive properties of institutional safeguards.
In federations, where at least two independent governments serve each citizen, constitu-
tions don’t dole out responsibilities as much as divide up jurisdictional kingdoms, setting
rules about what authorities each government has. Not only are these rules incomplete and
imprecise, but they can be ignored. The constitutional document has no force of its own; it
relies upon others to interpret it and enforce its declarations. Challenging the federation’s
prosperity is a natural tendency by each government to take advantage of the sacrifices
made by others to the advantage of its own constituents. Often, in sincere service to its
own constituents, a government will manipulate or defy the division of authority, either
intentionally or as a by-product of its actions. Bearing in mind that the purpose of the
division of authority is to provide one (or more) of the meta public goods of security, pros-
perity, and quality representation, deviations from it—especially to satisfy a subpopulation,
or for myopic interests—are literally counterproductive.
2
Nevertheless, trespassing into the
authorities of another level of government, or as we will call it, opportunistic behavior, is
2
One goal of the federation is to satisfy the representational and autonomy demands of the subunits.
This goal may induce compromises in the composite of the federation’s objectives. Section 2.6 discusses the
trade-offs inherent to any design of federalism.
Mindful that each society’s needs are unique, this book will not offer a prescription about the specific
division of authority between the state and national governments, such as: “Let the national government
have exclusive authority in foreign affairs and regulation of internal trade, and the states all else.” Such
a prescription is of course important, and public policy and fiscal federalism have made advances in their
capacity to make prescriptions (some will be covered in Chapter 2). Instead, this book says: given a designed
distribution of authority, how do you guarantee that it will be (mostly) heeded?
Convention