Negotiating Constitution for Political Unions

Vikas Kumar
JEL codes: 

This paper provides a cradle-to-grave model for political union between two unequally
endowed states. We introduce negotiated, contested, and time-consistent contested
constitutions to address various classes of merger problems. Merger agreement is shown to
be path dependent and, in some cases, time inconsistent. The possibility of contest constrains
the set of mutually agreeable tax rates and provides stability to a constitution. Demographic
heterogeneity constrains the set of mutually agreeable mergers. Rent extracted by
technologically advanced province for transferring technology to the backward province in a
union is shown to be increasing in complexity of technology but bounded from above. The
model can also support the possibility of historical cycles of political geography. The main
contribution of this paper is to highlight the role of technology gap and unequal distribution
of resources in all the above cases.