Economic Benefits of Ethnolinguistic Diversity: Implications for ...

In that book, the authors argued that ethnic diversity constitutes both political and economic costs for the country because it increases the heterogeneity in preferences for public goods. Ethnic diversity leads to the increase in diverse preferences, cultures, and languages within a population. That, in turn, leads to disagreements over the basic characteristics of a government such as redistributive schemes, public goods, or foreign trade.

The disagreement over public goods and policies in heterogeneous societies leads to higher costs associated with the functioning of the society. Since belonging to a country implies agreeing to a set of policies, ethnic heterogeneity implies that very diverse individuals have to come to an agreement on those matters. The costs associated with that process are called by Alesina and Spolaore (2003) “the costs of heterogeneity” (p. 17). They wrote, “[I]f a great many diverse individuals share the same public goods and policies, they face increasing costs of heterogeneity of preferences, since they have to agree with each other and share common policies” (p. 17).

Alesina and Spolaore (2003) argued that due to the costs associated with heterogeneity, it is more beneficial for countries to be homogeneous. The members of more homogeneous countries find it easier to reach agreement over the policies of a jurisdiction, and thus the costs associated with heterogeneity of preferences over the policies of a jurisdiction are minimized. The authors contended that “homogeneous polities function more harmoniously” (p. 6).

According to Alesina and Spolaore (2003), the reason why the societies have not always formed small and homogeneous states lies in the fact that there are certain benefits associated with a bigger population size. The authors argued that “the sizes of national states (or countries) are due to trade-offs between the benefits of size and the costs of heterogeneity of preferences” (p. 3). The reason why we have historically seen a tendency to form big countries is that the benefits of size in the previous times were outweighing the costs of heterogeneity.