The Art of Making Everybody Happy: How to Prevent a Secession
November 1, 2001
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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.
Subject: Income inequality, National accounts, Population and demographics, Transportation
Keywords: Africa, cost allocation, government cost, Income inequality, Partial Equalization, secession tendency, secession-proof allocation, Threat of Secession, transfer scheme, Transfer Schemes, Transportation, WP
Pages:
36
Volume:
2001
DOI:
Issue:
176
Series:
Working Paper No. 2001/176
Stock No:
WPIEA1762001
ISBN:
9781451858815
ISSN:
1018-5941
