Abstract
In this chapter we study policy responses to an increase in post-merger distress. We consider the integration of regions and nations as a merger of populations which we view as a revision of social space, and we identify the effect of the merger on aggregate distress. The chapter is based on the premise that the merger of groups of people alters their social landscape and their comparators. Employing a specific measure of social distress that is based on the sensing of relative deprivation, a merger increases aggregate distress: the social distress of a merged population is greater than the sum of the social distress of the constituent populations when apart. In response, policies are enacted to ensure that aggregate distress and/or that of individuals does not rise after a merger. We consider two publicly-financed, cost-effective policies designed so as not to reduce individuals’ incomes: a policy that reverses the negative effect of the merger on the aggregate level of relative deprivation, bringing it back to the sum of the pre-merger levels of aggregate relative deprivation of the two populations when apart; and a policy that is aimed at retaining the relative deprivation of each individual at most at its pre-merger level. These two policies are developed as algorithms. Numerical examples illustrate the application of the algorithms.
This chapter builds on and develops ideas presented in a lecture delivered at the Aarhus University Conference on “Globalization: Strategies and Effects,” Koldingfjord, November 2011. The warm words and helpful comments of a referee, the advice and guidance of Carsten Kowalczyk, and the wise suggestions and able assistance of Marcin Jakubek are gratefully acknowledged.
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Notes
- 1.
- 2.
The operator \( \circ \) is commutative and associative on the set of ordered vectors, and satisfies the closure property.
- 3.
To see the variation in the externality repercussion even more starkly, note that when 3 joins 1 and 1, he confers a negative externality on the incumbents; when 3 joins 5 and 5 he confers neither a negative externality nor a positive externality on the incumbents; and when 3 joins 4 and 5, he confers a positive externality on incumbent 4.
- 4.
We resort here to this last condition because of an implicit assumption that an individual’s utility depends positively on his income and negatively on his relative deprivation. Because we do not know the exact rate of substitution between decrease in relative deprivation and decrease in income, we do not know how much income we could take away from an individual whose relative deprivation decreased in the wake of the merger. Therefore, to guarantee that the utility of an individual will not be decreased in the process, we impose the requirement that incomes cannot be lowered. Put differently, seeing to it that the individual’s post-merger relative deprivation is not higher than his pre-merger relative deprivation while holding the individual’s income constant constitutes a sufficient condition for retaining the individual’s wellbeing at its pre-merger level.
- 5.
There are, however, specific cases where this solution is optimal such as when, for example, the merged populations consists each of one individual, with one individual earning less than the other.
- 6.
By i-th highest we mean an ordering that allows for (co-)sharing a position, that is, in a population with incomes (1, 2, 2, 3), the individual earning 3 has the 1st highest income, the individuals earning 2 have the 2nd highest incomes, and the individual earning 1 has the 3rd highest income.
- 7.
In the case of Example 2, sufficiency stands for convergence of \( z=\left(1,2,3,4\right) \) to\( {z}^2=\left(11/4,11/4,3,4\right) \).
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Stark, O. (2017). Possible Policy Responses to a Dark Side of the Integration of Regions and Nations. In: Christensen, B., Kowalczyk, C. (eds) Globalization. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49502-5_14
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