We investigate how the number and size of local political jurisdictions in an area is determined. Our model focuses on the tradeoff between the benefits of economies of scale and the costs of a heterogeneous population. We consider heterogeneity in income, race, ethnicity, and religion, and we...

This paper shows that smaller countries have larger public sectors as a share of GDP, and are also more open to trade. These empirical observations are consistent with recent theoretical models explaining country formation and break up