On Enhanced Cooperation
نویسندگان
چکیده
Should a subset of member states of a federation be allowed to form a sub-union on some policy issue? When centralization on that issue by all members is not politically feasible, allowing an enhanced cooperation among a subset of countries permits the latter to gain benefits which would otherwise be lost. However, if in the future the excluded countries also want to join, the fact that a sub-union has been formed in the past, may change the status quo to the advantage of the first comers. We show that as long as countries can commit to harmonize at a standard which also takes into account the utility of the excluded country, sub-union formation may be optimal. Furthermore, the range of parameters where it is optimal expands if there political imperfections, such as costly transfers. On the other hand, if commitment is not possible then excluded countries may be penalized. We use these results to discuss of the newly introduced enhanced cooperation in the European Union. JEL Classification numbers: H1, H7.
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