Efficiency and Stability in a Discrete Model of Country Formation

with K. Cechlárová and V. Lacko, Journal of Global Optimization, 2001, DOI

This paper studies efficient and stable country configurations in a simple model of country formation. Driving force of the model is a trade-off between the benefits of large countries and the costs of heterogeneity of large and diverse populations. We show that efficient configurations as well as stable configurations exist for each value of the model parameter; however, there is no unambiguous relation between them. Moreover, country sizes in efficient configurations may differ by at most two, while in stable configurations the differences in their sizes may be relatively high. Our results contrast with those of Alesina and Spolaore (1997).