Diversity,identity, and the indeterminacy of the size of nations

Recently economists have explored the impact of ethnic and social diversity on nation size and on the relative efficacy of the production of private and public goods. In a neoclassical framework with perfect and complete information, diversity increases the costs of government, and both the size of government and of the nation are limited. The paper proposes an alternative evolutionary framework building on the economics of identity. With imperfect and incomplete information, the relation between nation size and diversity is indeterminate, because heterogeneity plays an important role for the coordination among actors, and because political organization is crucial for the endogenous formation of preferences.