The Art of Making Everybody Happy: How to Prevent a Secession
In this paper we examine compensation schemes that prevent a threat of secession by any of a country's regions. We prove that, under quite general assumptions on the distribution of citizens' preferences, there exist transfer schemes that are secession-proof. Moreover, we show that these compensation schemes entail a degree of partial equalization among regions: the gap between advantaged regions and disadvantaged regions has to be reduced but it should never be completely eliminated. We demonstrate that in the case of a uniform distribution of the nation's citizens, the secession-proof conditions generate the 50 percent compensation rule for disadvantaged regions. Copyright 2003, International Monetary Fund
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Volume (Year): 50 (2003)
Issue (Month): 3 ()
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