The Art of Making Everybody Happy : How to Prevent a Secession

Author/Editor:

Michel Le Breton ; Shlomo Weber

Publication Date:

November 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

In this paper we consider a model of the country with heterogeneous population and examine compensation schemes that may prevent a threat of secession by dissatisfied regions. We show that horizontal imbalances are combatable with secession-proof compensation schemes that entail a degree of partial equalization: the disadvantageous regions should be subsidized but the burden on advantageous regions should not be too excessive. In the case of uniform distribution, we establish the 50-percent compensation rule for disadvantageous regions. Thus, we argue for a limited gap reduction between advantageous and disadvantageous regions and show that neither laissez faire nor Rawlsian allocation is secession-proof.

Series:

Working Paper No. 01/176

Subject:

English

Publication Date:

November 1, 2001

ISBN/ISSN:

9781451858815/1018-5941

Stock No:

WPIEA1762001

Format:

Paper

Pages:

36

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