Political Bargaining in a Federation: Buchanan Meets Coase

28 Pages Posted: 30 Jan 2004

See all articles by Mark Gradstein

Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); World Bank - Development Research Group (DECRG)

Date Written: January 2004

Abstract

In recent decades, the issues of federalism and political integration have gained prominence in public debate as well as in the academic realm. A frequently made point is that allowing free secession may protect the minority's interests, thus providing it with an incentive to enter the federation. This Paper explicitly considers the political process in the federation arguing that the option to secede may distort the political choices made by the individual regions to improve their bargaining positions. As a result, the allocation of resources in the federation could well end up being inefficient and unattractive for the minority region. In contrast, limiting the secession possibilities by requiring the consent of a majority of voters through a regional referendum, rather than leaving it to the discretion of the legislature, restores efficiency.

Keywords: Federation, secession

JEL Classification: D72, H77

Suggested Citation

Gradstein, Mark, Political Bargaining in a Federation: Buchanan Meets Coase (January 2004). Available at SSRN: https://ssrn.com/abstract=496123

Mark Gradstein (Contact Author)

Ben-Gurion University of the Negev - Department of Economics ( email )

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Israel
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Centre for Economic Policy Research (CEPR)

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World Bank - Development Research Group (DECRG)

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