Steven G. Calabresi & Nicholas Terrell, The Number of States and the Economics of American Federalism

63 Fla. L. Rev. 1 (2011)| | | |

INTRODUCTION :: In 1789, it was possible to speak of a federation of distinct states joined together for their mutual advantage, but today, it is rather the nation that is divided into subnational units. What caused this shift in focus from the states to the federal government? Surely, the transformation from a collection of thirteen historically separate states clustered along the Atlantic seaboard to a group of fifty states largely carved out of federal territory has played a role. Building on previous analysis of the economics of federalism, this Article considers the dynamic effects of increasing the number of states on the efficient allocation of government authority between the state and federal governments. When the number of states is low, the externalities imposed by state-level actions are more limited, and so is the scope of federal power. When the number increases, however, the scope of efficient federal power expands because the states face collective action problems.

In the second Part of this Article, we apply these insights from the economics of federalism to the question of the optimal number of states in a federal system. Having too few states will lead to insufficient cohesion at the federal level, risking secession, and ensuring weak government. On the other end of the scale, having too many states encourages the centralization of power. While the optimal number of states in a federal system will ultimately depend on geography, legal culture, and technology, the available data suggest that the ten provinces of Canada may be too few, but the fifty states of the United States may well be too many.


What difference did it make to American federalism and constitutional law between 1791 and 1912 that the United States grew from being a federation of only thirteen coequal states to being a federation of forty-eight coequal states? This Article will attempt to speculate about that important question-a question which has not been systematically analyzed so far in the otherwise extensive law review literature on federalism. With its fifty states, the United States federation today has many more member units than it started out with and many more than do other federations around the world. Our thesis in this Article is that this trend in American federalism is a very consequential and under-appreciated development.

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