| States' governing coalitions will be inclined to have their states join federations when states would benefit from coordinating policies but they face a commitment problem. Such a commitment problem exists when cooperation would cause one of the states, but not all, to invest in assets that are only useful as long as the cooperative relationship persists, and when there is a chance that the states' preferences over the particular policies at issue will diverge over time. Using the examples of Australia, Argentina, and British East Africa, I show that governing coalitions' interests in regional market integration can drive states to attempt to federate. When the gains to these coalitions of regional economic integration are high, but integration would create unequal trade dependence and there is a chance that preferences over market regulation (such as tariffs or industrial policy) would diverge in the future, states will need to have a set of political institutions to serve as a commitment device.; Political institutions are like agents that hold bonds states post in a relationship. In joining a federation, state leaders invest political assets (reputations, strategic choices, and career paths) into an interstate institution, such as a legislature. These political assets are linked to a decision-making rule that specifies how the states will jointly decide policy. If the leaders of a state renege on their commitment to follow the decision-making rules of the institution, then they lose the political assets they have invested in that institution. So, when state leaders want to cooperate on some policy, they can use interstate institutions like a federal government to raise the costs to all of them of non-cooperation. |
