Publication

This paper presents a dynamic model to analyze the structure of long-term risk sharing contracts between ethnic and political minorities and majorities. The author argues that when the contractual arrangement is legally enforceable, parties are fully insured and the principles governing allocation of power across parties are consistent from one period to another. However, when neither party can be trusted, the optimal risk-sharing contract can be enforced only if parties value the future highly. Otherwise, he claims, political insurance will only be partial and the minority access to government will change over time.