The Economics of Multi-level Governance: on the Benefits of Overlapping Jurisdictions

Abstract: Why various governance levels operate at the same time and do the same thing? This paper aims at proposing an efficiency-based explanation for the duplication of governance provision by various layers of a governance system. Multilevel governance helps mitigating the costs of centralization (resp. decentralization) because there are complementarities among levels in the provision of economic governance. The paper relies on an analysis of the cost function of the provision of order to highlight why efficiency gains can be obtained by combining levels of provision. Three sources of complementarities are identified: the arbitrage between economies of scale and adaptation to specific coordination needs, the efficient use of (bounded) cognitive capabilities, the control of the risk of capture. Empirical illustrations are relied upon to highlight how these elements play in practice.