Interstate compacts: The economics of the constitutional mechanism for interstate cooperation

This dissertation analyzes the economic properties of the U.S. Constitutional mechanism for legally binding interstate cooperation and coordination - the interstate compact. The interstate compact allows states to enter into contractual agreements with one another to coordinate policy choices or to engage in cooperative endeavors. Given the inter-jurisdictional nature of the issues that affect states, this mechanism is a powerful tool to achieve welfare-enhancing outcomes for a state's citizens.A review of the legal case law surrounding interstate compacts is conducted to analyze the legal properties from an economic perspective. These economic properties are used to develop a game-theoretic environment and a neoclassical growth model. In these two environments, behavior under the compact is compared with states acting on a voluntary basis taking the period actions of the other states as given. The compact mechanism can lead to Pareto-superior outcomes for the compact signatory states. The implications of the legal review, the game theoretic framework, and the neoclassical growth model are analyzed and policy conclusions discussed.