An indispensable feature of a federation is autonomy of the parts of the federation. Federation systems differ in a degree of autonomy. Respecting group rights in social decision-making in federations can be in conflict with the Pareto optimality principle. It is the essence of the so-called federal paradox. The paradox of federalism, unlike the liberal paradox, i.e., a similar potential inconsistency between respecting individual rights and the efficiency of social decisions, has not yet been fully analyzed. In this paper, after presentation of the liberal paradox, well described in the literature, we present a formal characterization of the federal paradox. Moreover, some other problems connected to decision-making in federations are discussed.
