Integration, Third Region Effect, and Policy Commitment

Abstract

In this chapter, we introduce a three-region model for integration and secession with policy preference and policy conflict cost. Under alternative assumptions of policy commitment of third region and integrating two regions, we show how the difference in policy preferences in two regions and the policy conflict cost influences the possibility of secession. Furthermore, we show how the policy preference in the integrated minority region affects the third region’s utility. We assume that the integration agreement works as a commitment device; therefore, integrated regions play as the first mover, and the independent region reacts to the policy agreement of the integrated regions. We consider that the policy agreement is not altered in the future because it is international treaty and announced to the public.