Federalism belongs to those institutions that usually attract more admirers than critics. This study investigates whether decentralized decision making in the asylum domain undermines the principle of equality in the handling of individual cases. The externalities that power delegation creates are examined, and a principal/agent framework is developed to show how state discretion in the implementation of a unifying federal measure arises. The model distinguishes between positive and negative discrimination in the acceptance of asylum applications. The empirical analysis of approximately 180,000 cases demonstrates that the probability of negative discrimination is partly a function of the organizational principles that characterize the asylum policies of the 26 Swiss states (cantons).