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Interstate Competition and the Race to the Top

This essay, based on remarks at the 2011 Federalist Society Student Symposium, discusses some of the benefits of federalism. Many of the benefits of federalism derive from interjurisdictional competition, as competition among jurisdictions is a powerful means to discover and promote welfare-enhancing policies. Decentralizing authority over various policy matters also leaves states free to account for regional variation and can facilitate policy discovery and entrepreneurship and reduce the risks of policy failures. While the arguments for decentralization are strong, there are persuasive justifications for federal intervention in some instances, such as the existence of interstate spillovers. Fears of a “race to the bottom” is not a persuasive justification for federal intervention, and federal intervention to prevent such a “race” can hamper welfare-enhancing interjurisdictional competition.