National Conflict in a Federal System

Abstract: To explore the relationship between federalism and political conflict, we develop a model of two-level governance with interstate preference heterogeneity and cross-state externalities. States with high demand for public spending or regulation are better positioned to adjust state-level policies to compensate for perceived inadequacies in national policy than states with low demand. Concurrently, the ability of states to free-ride on other states’ policies disproportionally reduces low-demanding states’ preference for national policy solutions. We show that, given these asymmetries, (1) polarization of the representatives from those states in a national legislature may be higher in federal than unitary systems, even holding policy demand constant; and (2) the incentives for officials from low- and high-demand states to engage in unproductive conflict are contingent on the status quo national level of policy, and may be higher under federalism than unitary governance – contrary to the common understanding of federalism as a conflict-mitigating institutional form. The model helps account for a number of empirical regularities in U.S. politics and policymaking.