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Domino Secessions: Evidence from the U.S

Author

Listed:
  • Lacroix, Jean

    (RITM, Universite Paris-Saclay)

  • Mitchener, Kris James

    (Department of Economics, Leavey School of Business, Santa Clara University, CAGE, CESifo, CEPR and NBER)

  • Oosterlinck, Kim

    (CEBRIG, Solvay Brussels School of Economics and Management, Université libre de Bruxelles and CEPR)

Abstract
We analyze how secession movements unfold and the interdependence of regions’ decisions to secede. We first model and then empirically examine how secessions can occur sequentially because the costs of secession decrease with the number of seceders and because regions update their decisions based on whether other regions decide to secede. We verify the existence of these domino secessions using the canonical case of the secession of southern U.S. states in the 1860s. We first establish that financial markets priced in the costs of secession to geographically-specific assets (state bonds) after Lincoln’s election in the fall of 1860 – long before war broke out. We then show that state bond yields reflect the decreasing costs of secession in two ways. First, as the number of states seceding increased, yields on the bonds of states that had already seceded fell. Second, seceding states with more heterogeneous voters had higher risk premia, reflecting investors beliefs that further sub-secession was more likely in these locations.

Suggested Citation

  • Lacroix, Jean & Mitchener, Kris James & Oosterlinck, Kim, 2023. "Domino Secessions: Evidence from the U.S," CAGE Online Working Paper Series 676, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:676
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Secession; state debt; interdependence; U.S. Civil War; uncertainty JEL Classification: H77; N21; G12;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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