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Negotiating constitutions for political unions


  • Kumar, Vikas


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.

Suggested Citation

  • Kumar, Vikas, 2011. "Negotiating constitutions for political unions," International Review of Law and Economics, Elsevier, vol. 31(1), pages 58-76, March.
  • Handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:58-76

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    References listed on IDEAS

    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    3. Chang Roberto, 1995. "Bargaining a Monetary Union," Journal of Economic Theory, Elsevier, vol. 66(1), pages 89-112, June.
    4. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
    5. Kumar, Vikas, 2011. "Negotiating constitutions for political unions," International Review of Law and Economics, Elsevier, vol. 31(1), pages 58-76, March.
    6. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(6), pages 657-676.
    7. Herschel I. Grossman, 2004. "Constitution or Conflict?," Conflict Management and Peace Science, Peace Science Society (International), vol. 21(1), pages 29-42, February.
    8. Albert Breton, 1964. "The Economics of Nationalism," Journal of Political Economy, University of Chicago Press, vol. 72, pages 376-376.
    9. Fershtman, Chaim, 1990. "The importance of the agenda in bargaining," Games and Economic Behavior, Elsevier, vol. 2(3), pages 224-238, September.
    10. 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.
    11. 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.
    12. Tsebelis, George, 1988. "Nested Games: The Cohesion of French Electoral Coalitions," British Journal of Political Science, Cambridge University Press, vol. 18(02), pages 145-170, April.
    13. 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.
    14. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-565, May.
    15. Ludwig van den Hauwe, 2005. "Constitutional economics," Public Economics 0508010, EconWPA, revised 22 Dec 2005.
    16. Anbarci, Nejat & Skaperdas, Stergios & Syropoulos, Constantinos, 2002. "Comparing Bargaining Solutions in the Shadow of Conflict: How Norms against Threats Can Have Real Effects," Journal of Economic Theory, Elsevier, vol. 106(1), pages 1-16, September.
    17. Herschel Grossman, 2002. "Constitution or Conflict?," Working Papers 2002-01, Brown University, Department of Economics.
    18. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, March.
    19. Bordignon, Massimo & Brusco, Sandro, 2001. "Optimal secession rules," European Economic Review, Elsevier, vol. 45(10), pages 1811-1834, December.
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    Cited by:

    1. Kumar, Vikas, 2011. "Negotiating constitutions for political unions," International Review of Law and Economics, Elsevier, vol. 31(1), pages 58-76, March.
    2. Alexander Libman, 2015. "Words or deeds: what matters? On the role of symbolic action in political decentralization," Empirical Economics, Springer, vol. 49(3), pages 801-838, November.

    More about this item


    Bargaining Constitution Contest Political union Time inconsistency;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • K39 - Law and Economics - - Other Substantive Areas of Law - - - Other


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