Constitutions, Federalism, and National Integration

A constitution defines a vertical and horizontal division of power. The vertical division is the power that regions transfer to the national government; the horizontal division is the relative power of each region in the national legislature. We explore what combinations of vertical and horizontal division of power arise when forming a nation or a union, and which combinations reduce the risk of dissolution. We present a new model of political bargaining among heterogeneous regions that design a common constitution. We show that scale economies translate into higher centralized systems, whereas cultural and political heterogeneity translate into more decentralized federal systems. Interestingly, the constitutions that minimize the risk of secession compensate with proportionally more power in the national legislature those regions that have less to gain economically from national integration. Such division of power contrast with other widely used that assign equal power to each region or power in proportion to population size. Our results suggest that compensations in the constitutional process need not be accomplished through direct transfers; it can be accomplished through the legislative process.