The topic of reforms is hotly debated among politicians and researchers. There are many approaches to explore the origins of reform deadlocks and budget deficits. Central to all these approaches are the costs generated either by the Status Quo or by eliminating the Status Quo via a reform. Costs generated by the reform can be offset by the government using compensation payments. Crucial for a successful reform is to minimize these compensation costs. The task is rather complicated, as certain groups of individuals, such as countries, federal states or political parties are hard to separate. Against this background this paper shows that under a majority rule the compensation costs can be minimized via enacting fragmentation among the population.
Political Economy Fragmentation Compensation Payments