Sovereignty in small island states and territories : an economic perspective

Abstract

Small island states and territories combine locally exercised, shared and delegated sovereign competencies in institutional arrangements. This article examines the economic gains and costs of these allocations, using functional sovereignty to describe the extent of local exercise. Gains from adaptation, information and responsiveness must be weighed against fixed costs, limited specialist capacity and forgone pooling opportunities. The welfare-maximising allocation depends on each jurisdiction’s circumstances, including external resources available under existing arrangements. Changes in constitutional status may entail substantial economic losses when these resources cannot be retained or replaced. Governance may alter the trade-off in either direction, while political and distributive incentives may sustain arrangements that diverge from the collective welfare optimum. Institutional trajectories reflect inherited capabilities, transition costs, external bargaining and reciprocal commitments. A formal appendix clarifies the conditional propositions. The analysis identifies context-dependent trade-offs without implying that institutional alternatives are economically equivalent or equally viable for a given jurisdiction.