DP3913 | International Unions

Publication Date

23/05/2003

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Abstract

We model an international union as a group of countries deciding together on the provision of public goods or policies that generate spillovers across members. The trade-off between benefits of coordination and loss of independent policy-making endogenously determines size, composition and scope of the union. Policy uniformity reduces the union?s size, may block enlargement processes and induce excessive centralization. We study flexible rules with non-uniform policies that reduce these inefficiencies focusing on arrangements relevant in the context of existing unions or federal states, like enhanced cooperation, subsidiarity, federal mandates and earmarked grants.