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The Art of Making Everybody Happy : How to Prevent a Secession

Listed author(s):
  • Le Breton, Michel
  • Weber, Shlomo

In this paper we consider a model of the country with heterogeneous population and examine compensation schemes that may prevent a threat of secession by dissatisfied regions. We show that horizontal imbalances are combatable with secession-proof compensation schemes that entail a degree of partial equalization: the disadvantageous regions should be subsidized but the burden on advantageous regions should not be too excessive. In the case of uniform distribution, we establish the 50-percent compensation rule for disadvantageous regions. Thus, we argue for a limited gap reduction between advantageous and disadvantageous regions and show that neither laissez faire nor Rawlsian allocation is secession-proof.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 164.

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Date of creation: 2003
Publication status: Published in IMF Staff Papers, n°01/176, novembre 2001. IMF Staff Papers, vol. 50, 2003, p. 403-435.
Handle: RePEc:ide:wpaper:569
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