We develop a model of policy experimentation in federal systems in which heterogeneous districts choose both whether to experiment and the policies to experiment with. The prospect of informational spillovers implies that in the fi rst best the districts converge in their policy choice....

Decentralised experimentation and mutual learning of public policies is seen as one of the important advantages of federal systems (Oates: laboratory federalism). Based upon Hayekian ideas of the advantages of decentralised experimentation (as a discovery procedure), we analyse the long-term...