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

Michel Le Breton and Shlomo Weber

No 2001/176, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; Transfer Schemes; Partial Equalization; Threat of Secession; cost allocation; government cost; secession-proof allocation; transfer scheme; secession tendency; Transportation; Income inequality; Africa (search for similar items in EconPapers)
Pages: 36
Date: 2001-11-01
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Citations: View citations in EconPapers (13)

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