A Social Contract Approach to the Formation of National Borders

This paper explores an economic model that elucidates theformation of national borders and explains the cross-sectionalvariance in the size of nations around the world. According tothe present social contract approach, risk averse agents tryto get out of the ``state of nature'' and get together to formsocieties to reduce consumption uncertainty, but heterogeneityaverse agents will not allow nations to become too large. Themodel relates the geometry of a nation with the geography ofits border and predicts the empirical observation thatcountries with ``coastline'' borders are larger than``landlocked'' countries.