Political Ramifications of an Interstate Market for Sovereign Territory

In my last post I tried to sketch some of the major constitutional considerations that would arise if one state were to purchase sovereign territory from another. Those considerations are weighty, to be sure, but they don’t seem sufficient to explain the total lack of an interstate market for sovereign territory. Perhaps part of the explanation lies in politics.

On the one hand, it’s not too hard to imagine some significant political upsides. A simplified Coasean story suggests that territory should be purchased by the state that values it the most, which seems like a good thing. And because a market for sovereign territory would make borders more fluid, it might also open up opportunities for Tiebout-like movement of citizens seeking a more congenial state government. (More precisely, it would permit the government to come to the citizens, rather than the other way around.) This could, in turn, inspire a beneficial competition between states seeking to acquire or retain citizens and valuable territory. Likewise, states that find themselves enmeshed in border disputes could resolve them with side-payments, as private landowners might, or simply find mutually beneficial ways to sell or adjust existing borders.

On the other hand, the political downsides of such a market would also be considerable. Some of those costs are the kind captured by ordinary politics; they could therefore help explain why the market is inactive. Other costs, however, represent potential political failures and might demand some external corrective.

As to the former, an interstate sale of sovereign territory would obviously raise immense transaction costs, particularly for the residents of the territory being sold. Elected officials and perhaps even state employees (those in the territory, at least) would stand to lose their jobs, and thus have plenty of incentive to oppose the transaction. Furthermore, it seems to me — and I’d love to know if this is a shared intuition — that the market for sovereign territory might never clear because states would generally set a higher price on their own borders than any potential buyer would ever be willing to pay.

The second set of political concerns consists of those costs that current political structures could fail to prevent. Some of the comments and emails I’ve received on my previous posts have emphasized the importance of self-determination and the danger of selling a territory against the will of its residents. Many historical transactions, after all, involved territory that was either sparsely populated or whose population did not “count” for one reason or another. Given the enormous and complex reliance interests that have arisen around our current state borders, the costs of change alone would be enormous. Moreover, the Tieboutian story above wouldn’t necessarily spin in a positive direction, and competition between states is not necessarily an unalloyed good. The possibilities for political corruption and side-dealing would be extreme, for one thing. And the costs to the system as a whole — political balkanization, upsetting the balance of vertical or horizontal federalism, the possibility of “rotten boroughs” (as Gerard pointed out), and so on —  could also be considerable.

I’m not sure where the balance between these concerns should lie, or even whether it’s possible to weigh them in the abstract. What if the transaction involved only a small slice of territory, or a large but uninhabited one? What if a super-majority of the territory’s residents supported the sale, or were trying to buy their way out of one state and into another with the blessing of both? Would it make things better if deals were structured so that those residents received a disproportionate share of the proceeds, in order to compensate them for the costs of changing state citizenship?

My guess is that even if the constitutional straits are navigable, and the political winds sufficient, people will still have major concerns about an interstate market for sovereign territory. Perhaps sovereign territory is (or has become, at least) market inalienable. I’ll try to address that next week. In the meantime, thank you for all of the comments and emails so far — I’m extremely grateful for your thoughts.

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3 Responses

  1. A.J. Sutter says:

    Apropos of “This could, in turn, inspire a beneficial competition between states seeking to acquire or retain citizens and valuable territory”: Isn’t there already interstate competition to acquire and retain citizens? After all, people can and often do move to other states. This is a bit simpler than shaving off bits of territory. So that leaves “beneficial competition” to retain valuable territory as something to be inspired; but it isn’t clear to me why this would necessarily be beneficial.

  2. Joseph Blocher says:

    A.J.: I think that’s right – citizens’ mobility surely inspires some interstate competition to retain them, just as the ability of businesses to select their state of incorporation is thought to inspire competition for corporate charters. I’m less sure, though, that counting on people to move will always be “simpler” than adjusting borders. After all, moving – especially moving interstate – is extremely costly in terms of money, time, energy, and so on. So long as there are some situations in which a border is less sticky than residence (i.e., the combined moving costs of individuals), couldn’t the border change be comparatively beneficial?

  3. A.J. Sutter says:

    I’d be more open to your suggestion if you can show how a border change could enable one to move from New York to California, as I did by jet a couple of decades ago. But even if you could stretch the Golden State to the shores of Lake Erie, the would-be interstate migrant wouldn’t necessarily want to wind up so close to home. It’s worth noting that my CA move was to Los Angeles for a job; there are plenty of places in the state that I would never move to. People often want to move to a specific metro area (which may already be multi-state, as in the case of NYC, DC, St. Louis, etc.), not to a specific state. Border shifts, even where feasible, don’t necessarily reduce the expense of such a move.

    Considering all the disadvantages of border shifts that you mention, it’s hard to imagine that the subset of cases of people who want to move a relatively short distance across a border would justify such a drastic solution, instead of just leaving it up to them to move. In fact, the number of cases that might benefit is even smaller, since your hypothesis is that they want to move across the border for reasons unrelated to any desire to live in a different physical environment — a border shift means they’d be in the same town, same neighborhood, etc. as before. You assume that people move in order to be subject to different laws; how common is that? In any case, the assertion I questioned was that the competition to retain territory would be beneficial, not whether border shifts might benefit some people.