infonet-economy

In a recent paper in this journal, Mantzavinos (2010) discussed the relation between federalism and individual liberty. Federalism leads to greater diversity among political units. Between this diversity and individual liberty he presumed two relations. (a) Greater diversity enhances individual liberty insofar as it increases the choice set of the citizens. (b) Greater diversity reduces individual liberty insofar as it increases exit costs. Thus, he arrives at an optimal degree of federalism. Both of these relations, but their combination in a common model in particular, have to be questioned. His first relation is in the dimension of rights, the second one, however, in the dimension of costs and benefits and to compare them causes problems. Moreover, his first relation is correct whenever we evaluate individual liberty in the dimension of rights, but not necessarily in the dimension of individual benefits. His second relation neglects the most important part of exit costs which usually decrease with greater liberty. Thus, the opposite relation between diversity and exit costs seems to be more plausible. In the following, these points are discussed.