Federations, Coalitions, and Risk Diversification

Posted: 16 Jun 2008 Last revised: 22 Jul 2017

See all articles by Shin-Hwan Chiang

Shin-Hwan Chiang

York University - Department of Economics

Ahmed Saber Mahmud

Cornell University

Abstract

Please enter abstract text here.We investigate the optimal size of a nation in the context of a portfolio choice model under uncertainty. With an equal sharing rule, we characterize the equilibrium coalition structure, which is shown to depend on income, risks, and market correlations. Specifically, coalitions are likely to form among regions with similar variance in income and among regions with negative market correlations. The conditions that yield a grand coalition, two sub-coalitions of different sizes, and singletons are derived. Moreover, the equilibrium coalition structures are also examined when geographical contiguity is required.

Keywords: Government, Portfolio Choice, Decision Making under Risk and Uncertainty

JEL Classification: H10, G11, D81

Suggested Citation

Chiang, Shin-Hwan and Mahmud, Ahmed Saber, Federations, Coalitions, and Risk Diversification. Public Choice, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1146707

Shin-Hwan Chiang (Contact Author)

York University - Department of Economics ( email )

4700 Keele St.
Toronto, Ontario M3J 1P3
Canada
416-736-5083 (Phone)

Ahmed Saber Mahmud

Cornell University ( email )

Ithaca, NY 14853
United States

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