DP12398 A Dynamic Theory of Secession

Author(s): Joan Esteban, Sabine Flamand, Massimo Morelli, Dominic Rohner
Publication Date: October 2017
Date Revised: November 2018
Keyword(s): conflict, mismatch, Secessions, Surplus Sharing
JEL(s): C7, D74
Programme Areas: Public Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12398

This paper builds a dynamic theory of secessions, conflictual or peaceful, analyzing the forward looking interaction between groups in a country. The proposed framework allows us to jointly address several key stylized facts on secession, and generates several novel predictions. We find that if a group out of power is small enough, then the group in power can always maintain peace with an acceptable offer of surplus sharing for every period, while when there is a mismatch between the relative size and the relative surplus contribution of the minority group, conflict followed by secession can occur. Accepted peaceful secession is predicted for large groups of similar prosperity, and higher patience is associated to a higher chance of secession. We formulate as a result a number of policy recommendations on various dimensions of federalism and other institutions.