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Negotiating constitutions for political unions

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  • Kumar, Vikas

Abstract

This paper provides a cradle-to-grave model of political merger between two states and highlights the role of cross-border disparities in material and technological endowments in state formation. This issue has not received adequate theoretical attention in the existing scholarship that has largely focussed on factors like defence, trade, and public goods provision. In this paper, merger negotiations are modelled using a bilateral bargaining model with inside options and contest as an outside option. It is shown that the threat of contest constrains the set of mutually acceptable taxes and, more importantly, it provides stability to the federal constitution by making the punishment strategy in the secession rule credible. The existence of negotiated and contested constitutional merger agreements that are path dependent but time-consistent is shown. Also, the rent extracted by the advanced province in the union for transferring technology to the backward province is shown to be increasing in the complexity of technology but bounded from above. Finally, the impact of demographic heterogeneity on the feasibility of inter-state mergers is discussed.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 31 (2011)
Issue (Month): 1 (March)
Pages: 58-76

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Handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:58-76

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Web page: http://www.elsevier.com/locate/irle

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Keywords: Bargaining Constitution Contest Political union Time inconsistency;

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References

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  1. Vikas Kumar, 2008. "Negotiating Constitution for Political Unions," Working Papers id:1797, eSocialSciences.
  2. Herschel Grossman, 2002. "Constitution or Conflict?," Working Papers 2002-01, Brown University, Department of Economics.
  3. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  4. Bordignon, Massimo & Brusco, Sandro, 1999. "Optimal secession rules," ZEW Discussion Papers 99-51, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Fershtman, Chaim, 1990. "The importance of the agenda in bargaining," Games and Economic Behavior, Elsevier, vol. 2(3), pages 224-238, September.
  7. Jeremy I. Bulow & Kenneth Rogoff, 1987. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  8. Chang Roberto, 1995. "Bargaining a Monetary Union," Journal of Economic Theory, Elsevier, vol. 66(1), pages 89-112, June.
  9. Putnam, Robert D., 1988. "Diplomacy and domestic politics: the logic of two-level games," International Organization, Cambridge University Press, vol. 42(03), pages 427-460, June.
  10. Robert P. Inman & Daniel L. Rubinfeld, 2008. "Federal Institutions and the Democratic Transition: Learning from South Africa," NBER Working Papers 13733, National Bureau of Economic Research, Inc.
  11. Albert Breton, 1964. "The Economics of Nationalism," Journal of Political Economy, University of Chicago Press, vol. 72, pages 376.
  12. Busch, L-A. & Wen, Q., 1991. "Perfect Equilibria in a Negotiation Model," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9108, University of Western Ontario, The Centre for the Study of International Economic Relations.
  13. Anbarci, N. & Skaperdas, S. & Syropoulos, C., 2000. "Comparing Bargaining Solutions in the Shadow of Conflict: How Norms Against Threats Can Have Real Effects," Papers 00-01-19, California Irvine - School of Social Sciences.
  14. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Working Papers 060705, University of California-Irvine, Department of Economics.
  15. Ludwig van den Hauwe, 2005. "Constitutional economics," Public Economics 0508010, EconWPA, revised 19 Aug 2005.
  16. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  17. Friedman, David, 1977. "A Theory of the Size and Shape of Nations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 59-77, February.
  18. repec:cup:cbooks:9780521855266 is not listed on IDEAS
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Cited by:
  1. Vikas Kumar, 2008. "Negotiating constitution for political unions," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2008-026, Indira Gandhi Institute of Development Research, Mumbai, India.

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