Abstract
To explore the effect of federal institutions on national political conflict, we develop a model of two-level governance with interstate preference heterogeneity and cross-state externalities. Our analysis calls into question the conventional interpretation of federalism as a conflict-minimizing institution. We show that polarization over national policy may be higher in federal than unitary systems, even holding policy demand constant. We also show that the incentives for low and high demanders to engage in costly conflict are contingent on the status quo national policy, and we identify conditions under which those incentives and the deadweight cost of political conflict are higher under federalism than unitary governance. The model helps account for a number of empirical regularities in US politics and policy making.
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