The Art of Making Everybody Happy: How to Prevent a Secession
IMF Working Papers, November 1, 2001
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- The Art of Making Everybody Happy: How to Prevent a Secession
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Bibliographic details
- Authors: Michel Le Breton, Shlomo Weber
- Published: November 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858815.001
Summary
- Model of a country with heterogeneous population examining compensation schemes to prevent secession threats by dissatisfied regions.
- Horizontal imbalances can be addressed with secession-proof compensation schemes entailing partial equalization.
- Disadvantageous regions should be subsidized while ensuring the burden on advantageous regions is not excessive.
- For uniform distribution, the paper establishes the 50-percent compensation rule for disadvantageous regions.
- Conclusion: advocate for limited gap reduction between advantageous and disadvantageous regions; neither laissez faire nor Rawlsian allocation is secession-proof.
Main findings and analysis
- Horizontal imbalances are combatable with secession-proof compensation schemes that entail a degree of partial equalization.
- Disadvantageous regions require subsidies to reduce secession tendencies.
- Advantageous regions must not bear an excessive burden; compensation must be balanced to remain secession-proof.
- In the case of uniform distribution, a specific rule is derived: the 50-percent compensation rule for disadvantageous regions.
- Neither laissez faire nor Rawlsian allocation provides secession-proof outcomes.
Policy implications and recommendations
- Implement partial equalization transfer schemes rather than full equalization or complete nonintervention.
- Design transfer schemes to subsidize disadvantageous regions up to the level implied by the 50-percent compensation rule in uniform-distribution settings.
- Avoid imposing excessive burdens on advantageous regions to maintain political sustainability and secession-proofness.