Domino Secessions

A secession movement is an uncertain process that evolves over time. We develop a simple theoretical framework in which regions use news to update their decisions to secede. Uncertainty and economies of scale are necessary conditions to observe ‘domino secessions’—sequential interdependent secessions. Empirically, we use geographically specific assets (state bonds) to assess how uncertainty and economies of scale influenced some slaveholding states’ decisions to secede from the United States in the 1860s. Uncertainty prevailed over the outcome of the secession movement with financial markets updating their priors on potential seceders at the election of Abraham Lincoln, but also every time a state seceded. We further document that financial markets priced in economies of scale to both state and federal debt.