The Political Economy of Regionalism

We examine the incentives of regions in a country to unite or to separate. We nd that smaller regions have greater incentives to unite, relative to larger regions. We show, however, that on the whole, majority voting on separation and union generates excessive incentives to separate. This leads us to examine the scope of alternative political institutions and rules in overcoming the potential ineÆciency. Our paper also provides a wide range of examples to illustrate the di erent institutions used in actual practice to resolve such problems.