Sunday, 30 March 2014

Public Choice and Annexations of Territories

The recent situation in the Crimea has made me think about the field of public choice and its potential implications for annexations of territories from one political jurisdiction by another. According to public choice theory, politicians are as self-interested as are the rest of us and will consequently take out as much as the traffic will bear from their subjects. Supposing politicians maximize pecuniary income, for instance, they will choose policies which best serve these goals. Institutional frameworkmight not actually matter too much for which public policies are chosen, so why, in terms of what legislation there is, should it matter whether one is governed by a fellow national or from the capital of a foreign power?

Maybe the annexed territory is more easily governed from the annexing power, but if politicians maximize all the time, this difference should not be too great at the time of annexation. Suppose, for instance, that the politicians of the annexing power can extract X from the annexed territory, while present rulers there can extract Y. If X is less than Y, present rulers could compensate the potential annexing power to retain status quo and thereby avoid annexation, but as soon as X gets bigger than Y, this strategy no longer pays and so annexation occurs. The point at which annexation becomes optimal from the point of view of the politicians of the annexing power is when X is just bigger than Y, so total extraction from the annexed territory should not be very different as a result of annexation.

Maybe there is a fear among members of some minority in the annexed territory of persecution under the new regime, because their new fellow nationals are apt to hate them. If so, total extraction from the population remains about the same, but different segments of the population are affected in different ways. However, mistreatment of minorities could have been part of the compensation mentioned above for as long as annexation was not chosen. This would have been a likely outcome if the annexing power really was full of haters of this minority. Again, it is hard to see why, purely as a result of annexation, any ordinary citizens should worry much about changing legislation.
It seems to me that much of this problem boils down to how large are the transaction costs associated with compensations occurring in lieu of annexation. Negligible transaction costs imply smoothness in transitions, but if it costs, say, 2Y to arrange for compensation while Y is greater than X, present rulers will not compensate the potential annexing power and X and Y can differ, potentially very greatly, at the time of annexation. I am inclined to believe politicians do not face too many obstacles in devising ways of compensating foreign powers. Trade agreements (with appropriately selected restrictions), taxation with loop-holes selected so as to effectively target specific individuals, not to mention different treatments of different individuals based on ad hoc rationales, are all “harnessable” instruments for reducing transaction costs.

Yet, if we return to the situation in the Crimea, the Tatar population there must be quite up-to-speed about the recent developments, and I would not feel comfortable announcing their recent exodus uncalled for. So, what is wrong with my analysis of annexations?

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