Rent-seeking, spillovers and the benefits of decentralization

In the presence of spillovers, decentralized provision of local public goods may lead to a higher surplus than centralized provision even though localities have identical preferences. Indeed, free-riding costs associated to decentralization can be lower than the costs of rent-seeking and influence activities under centralization. Actually, centralization yields a higher level of regional surplus only if both the spillover effect from local public spending is sufficiently large and the elasticity of the influence function is sufficiently small.