Working Paper: NBER ID: w31589
Authors: Jean Lacroix; Kris James Mitchener; Kim Oosterlinck
Abstract: A secession movement is an uncertain process that evolves over time. We develop a simple theoretical framework in which regions use news to update their decisions to secede. Uncertainty and economies of scale are necessary conditions to observe “domino secessions” – sequential interdependent secessions. Empirically, we use geographically-specific assets (state bonds) to assess how uncertainty and economies of scale influenced some slaveholding states’ decisions to secede from the U.S. in the 1860s. Uncertainty prevailed over the outcome of the secession movement with financial markets updating their priors on potential seceders at the election of Abraham Lincoln, but also every time a state seceded. We further document that financial markets priced in economies of scale to both state and federal debt.
Keywords: Secession; Financial Markets; Bond Yields; Civil War
JEL Codes: G12; H77; N21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Number of states seceding increases (H77) | Yields on bonds of states that had already seceded fall (H74) |
| Timing of Lincoln's election in 1860 (N91) | Rise in yields on non-northern state bonds (H74) |
| Passage of secession ordinances by states (H77) | Rise in yields on bonds (E43) |
| Support for secession ordinances varied across states (H77) | Higher yields in states facing more opposition (D29) |