Philippe Gagnepain (University of Panthéon-Sorbonne, PSE), joint with Riccardo Camboni (University of Padova), Andreea Enache (SSE), Jean-Pierre Florens (TSE), David Martimort (TSE), et Paola Valbonesi (University of Padova)
We provide an empirical analysis of the costs and benefits of decentralization. We consider a hierarchical model of government where, at the local level, public bodies run auctions for the provision of public services. At the top, the national layer also imposes a uniform cap on reserve prices. Local governments are better informed on local conditions and free to fix reserve prices below that cap to possibly adapt to local conditions. We first estimate a structural model of such a hierarchical regulation in the case of the Italian drugs industry. We recover the main characteristics of this industry and assess the determinants of decentralization between the local (Italian municipalities, regions) and the central government. We simulate two alternative scenarios. Under full decentralization, a local government has full discretion to determine the optimal reserve price. Under full centralization, a central government imposes a mandatory uniform reserve price. Our results suggest that full decentralization, which guarantees that local market features are well identified in the regulatory process, would increase total welfare by 5.9% while full centralization mostly harms welfare.