Working Paper: CEPR ID: DP4188
Authors: Mark Gradstein
Abstract: In recent decades, the issues of federalism and political integration have gained prominence in public debate as well as in the academic realm. A frequently made point is that allowing free secession may protect the minority?s interests, thus providing it with an incentive to enter the federation. This Paper explicitly considers the political process in the federation arguing that the option to secede may distort the political choices made by the individual regions to improve their bargaining positions. As a result, the allocation of resources in the federation could well end up being inefficient and unattractive for the minority region. In contrast, limiting the secession possibilities by requiring the consent of a majority of voters through a regional referendum, rather than leaving it to the discretion of the legislature, restores efficiency.
Keywords: federation; secession
JEL Codes: D72; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| allowing free secession (H77) | political extortion (D72) |
| political extortion (D72) | representatives less favorable towards maintaining a federation (H77) |
| representatives less favorable towards maintaining a federation (H77) | inefficient resource allocation (D61) |
| inefficient resource allocation (D61) | prioritizing region's interests over collective welfare (F52) |
| without constraints on secession (H77) | inefficient outcomes favoring majority region (D72) |
| majority vote for secession (D72) | restore efficiency (D61) |
| majority vote for secession (D72) | align preferences of elected representatives with collective interests (D72) |
| constitutional constraint (K10) | mitigate delegation effects (D72) |
| constitutional constraint (K10) | promote equitable allocation of resources (D63) |