Volltext: Very small countries: economic success against all odds

they would clearly provide these optimal quantities. In the case of a cen- tral decision-making authority, where it is only possible to provide a cer- tain quantity of the good, A and B will arrive at a quantity between qa and qb, say qa+b. qa+bis a «compromise» which leaves both individual A and B, with a welfare loss indicated by the lined area. Note that eco- nomies of scale are not existent in the model underlying Figure 4.3. As a consequence, federalism is one possible way for larger countries to com- ply with different non-PA curves within the population and, hence, to diminish preference 
distances. Other possible criteria Besides competition, which has already been analyzed in detail in Section 4.1.2, there are two other noteworthy concepts that should be enumerated and explained in brief: –The extent of institutional congruence is an institutional yardstick with which different organizational units of public good provision are compared. It is intimately related to the concept of fiscal equi- valence. Speaking of institutional congruence means that decision 82 
Very small countries: organizational choice and international outsourcing coststax price quantity of publicly provided good 
MUb MUaqa+b qaqb 
Figure 4.3: Federalism and preference adequacy


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