Inefficiency and Self-Determination: Simulation-Based Evidence from Meiji Japan

Abstract

Does the exercise of the right of self-determination lead to inefficiency? This paper considers a set of centrally planned municipal mergers during the Meiji period, with data from Gifu prefecture. The observed merger pattern can be explained as a social optimum based on a very simple individual utility function. If individual villages had been allowed to choose their merger partners, counterfactual simulations show that the core is always non-empty, but core partitions contain about 80% more (post-merger) municipalities than the social optimum. Simulations are possible because core partitions can be calculated using repeated application of a mixed integer program.

Keywords: Municipal mergers, one-sided matching, moment inequalities, mixed integer programming, Gifu

JEL Classification: C63, C71, H77, K33, N95