Optimal secession rules

Should the constitution of a federation allow for peaceful secession? Constitutionally defined secession rules are optimal ex post if the federation breaks down. However, they may be suboptimal ex ante if the member countries receive a benefit from the perceived long-term stability of the federation...

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Bibliographic Details
Published in:European economic review 2001-12, Vol.45 (10), p.1811-1834
Main Authors: Bordignon, Massimo, Brusco, Sandro
Format: Article
Language:English
Subjects:
Asymmetric information
Bargaining
Constitutions
Economic models
Economics
Federalism
Secession
Social contract
Studies
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Summary:Should the constitution of a federation allow for peaceful secession? Constitutionally defined secession rules are optimal ex post if the federation breaks down. However, they may be suboptimal ex ante if the member countries receive a benefit from the perceived long-term stability of the federation and constitutionally defined secession rules increase the probability of a break-up. The optimal social contract trades off ex ante benefits and ex post losses, and it may avoid explicit secession rules. If transfers are costly, the trade-off is present even if ex post renegotiation is allowed. Finally, we show that under asymmetric information it is more difficult to keep the federation together and that a secession war may occur.
ISSN:0014-2921
1873-572X
DOI:10.1016/S0014-2921(00)00095-7