DP3042 | Optimal Majority Rules and Enhanced Cooperation


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The decision-making rules of the European Union (EU) are defined in an incomplete contract signed by 15 national governments. The design of the contract defines the set of policy issues where it applies ? in decision-making rules i.e. the majority rules and the division of powers among the actors involved. The treaty also gives competence to the Commission in terms of making legislative proposals. In this Paper, our objective is to study how decision-making rules affect expected outcomes in the above-described hierarchy. Our aim is to derive ex ante optimal voting rules in the setting where decision-making can be modelled as a spatial voting game. We thus assume that the players have spatial preferences but the rules are designed behind veil of ignorance. The designers only know how member states? ideal policies are distributed in the policy space but as the rules are later applied in day-to-day decision-making, preferences are known by all players. We also analyse two types of designers, benevolent and self-interested. Benevolent designers take the whole range of national preferences into account in their design. Self-interested government designs the rules by taking only the preferences of the same type of government into account but assesses the consequences of increased status quo risk if an anti-integrationist government is in power. The Paper shows that when the probability of 'no gains from integration' is positive it is, in general, impossible to design majority rules efficiently. This holds as far as the player set is finite and countable. The welfare loss is not, however, necessarily very big if the likelihood of potential integration gains is sufficiently high. Then, the optimal (i.e. as close to efficient as possible) design leads to outcomes that have an expectation close to the expected ideal policies of member states. When design completely disregards anti-integrationist views an increase in status quo risk makes the optimal majority threshold lower. If anti-integrationist views are taken into account an increase in status quo risk has a smaller and potentially non-monotonic impact. If the likelihood of no gains from integration increases enough the discrepancy between the two designs becomes wider, which makes the trade-off more difficult to solve. The compromise solution is closer to a purely self-interested solution, which makes it possible that the countries with less likely gains are better off when they stay out. The Paper demonstrates, however, that when the likelihood of no gains from integration is relatively small the discrepancy between the two designs is rather small as well. The Nice Treaty of the European Union, signed in February 2001 defines explicit rules for the so-called enhanced cooperation. It allows sufficient number of member states to proceed in integration to areas where not necessarily all member states are likely to gain equally. In this Paper, we have demonstrated how the need for enhanced cooperation might emerge. According to the Nice Treaty, enhanced cooperation projects make decisions in a similar fashion as the decisions are made in common policies but among a smaller group. If these rules are a result of self-interested or average loss minimizing design and the general design is a result of small likelihood of 'no gains from integration' this is what the results of this paper suggest to be a plausible solution.