All constitutions must define who is allowed to participate in governments’ decisions (citizenship), what governments can and cannot do (personal and economic rights), how governments’ decisions are to be made (political rights and voting rules), and how governments’ decisions are to be enforced (judicial rules). Federal constitutions must also be defined along three additional dimensions: the number of lower tier, or local, governments in the federal union, the assignment of policy responsibilities to local and national governments, and the representation of local jurisdictions in the national government. Three alternative federalist constitutions can be specified.

Decentralized Federalism; Decentralized federalism combines Charles Tiebout’s (1956) competitive model of government with Ronald Coase’s (1960) model of efficient bargaining. Using the arguments of Tiebout, the number of local governments is set equal to that partition of a population which can provide the most congestible “local” public good as efficiently as possible. Examples of congestible public goods — goods where more users eventually reduces the benefits enjoyed by previous users — include education, police and fire protection, health care, highways, parks, libraries, communication networks. The efficient community size for the most congestible local public goods is about 20,000. Assignment in decentralized federalism allocates all policy responsibilities, at least initially, to these local governments. Local governments may jointly decide to allocate some or all of their policy responsibilities to a central government. Decisions to allocate policy centrally, and deciding what those policies should be, will be made by a national legislature. Representation to this national legislature will ensure at least one representative for each local government. Following the logic of Coase bargaining, unanimity is the required voting rule in this legislature.