Economic integration and political fragmentation

The purpose of this article is to provide an economic analysis of the relationship between economic integration and political fragmentation. This follows previous contributions from Alesina et al (2000), Casella (2001, Casella and Feinstein (2002), or Leite-Monteiro and Sato (2003). We go a step further than these authors by assuming that economic integration and political fragmentation are both decided by a majority vote. As them, we observe that economic integration involves political fragmentation. But, we establish also that economic integration might be sometimes deterred by the majority to prevent political fragmentation from happening.economic integration, public good, secession, vote

On the strategic use of representative democracy in international agreements

We consider as endogenous the choice of the delegation' rule in a political integration process between two countries. We study three potential types of delegation: strong, weak or no delegation, this last case corresponding to a referendum. We show that populations decide to bind themselves by delegating the national policy decision to a "powerfull conservative representative", in order to improve their bargaining position. These non-cooperative behaviors of countries when they decide on their delegation rule induce negative political externalities between countries, which cancel the gains achieved by the internalization of economic externalities in the case of political integration. We then propose two extensions. First, we assume a pre-play game where the countries choose whether or not to initiate political integration. Secondly, we examine the consequences of ratification by referendum. We conclude that a Pareto improvement of the political integration process would be to specify within the international treaty itself the means for its ratification; more precisely, to incorporate a formal ratification procedure, corresponding to an ex post referendum.Delegation, International Agreements, Nash Bargaining Solution, Political Integration, Ratification, Referendum

The Theory of `Internal Exit', a comment on Buchanan and Faith (1987)

The purpose of this note is to correct an error in the seminal article on secession by Buchanan and Faith (1987). In their paper, Buchanan and Faith neglected an important effect: political separation affects markets and consequently individual private incomes.secession;public good.

The Theory of `Internal Exit', a comment on Buchanan and Faith (1987)

The purpose of this note is to correct an error in the seminal article on secession by Buchanan and Faith (1987). In their paper, Buchanan and Faith neglected an important effect: political separation affects markets and consequently individual private incomes.secession, public good.

On the strategic use of representative democracy in international agreements

We consider as endogenous the choice of the delegation' rule in a political integration process between two countries. We study three potential types of delegation: strong, weak or no delegation, this last case corresponding to a referendum. We show that populations decide to bind themselves by delegating the national policy decision to a "powerfull conservative representative", in order to improve their bargaining position. These non-cooperative behaviors of countries when they decide on their delegation rule induce negative political externalities between countries, which cancel the gains achieved by the internalization of economic externalities in the case of political integration. We then propose two extensions. First, we assume a pre-play game where the countries choose whether or not to initiate political integration. Secondly, we examine the consequences of ratification by referendum. We conclude that a Pareto improvement of the political integration process would be to specify within the international treaty itself the means for its ratification; more precisely, to incorporate a formal ratification procedure, corresponding to an ex post referendum.Delegation;International Agreements;Nash Bargaining Solution;Political Integration;Ratification;Referendum

Endogenous timing game with non-monotonic reaction functions

The aim of this paper is to generalize the endogenous timing game proposed by Hamilton and Slutsky (1990) to cases where the reaction functions are non-motononic, as for instance in the literature on contest. Following the taxonomy of social dilemma provided by Eaton (2004) we consider several pos- sible situations depending on the nature of interactions (plain complementarity or plain substituability and strategic complementarity or strategic substitutability). Under the assumptions of the existence and the uniqueness of the Nash and Stackelberg equilibria, we highlight the presence of a first-mover advantage or a second-mover incentive only depending on the nature of cross-effects in players’ payoff functions and the slopes of their reaction functions at the Nash equilibrium of the static game. These properties allow us to determine rigorously the Subgame Perfect Nash Equilibrium (SPNE) in the ten studied situations. We establish under which conditions on the nature of interactions a leader emerges at the SPNEfirst-mover advantage, endogenous timing game, second-mover incentive, Subgame Perfect Nash Equilibrium

Economic integration and political fragmentation

The purpose of this article is to provide an economic analysis of the relationship between economic integration and political fragmentation. This follows previous contributions from Alesina et al (2000), Casella (2001, Casella and Feinstein (2002), or Leite-Monteiro and Sato (2003). We go a step further than these authors by assuming that economic integration and political fragmentation are both decided by a majority vote. As them, we observe that economic integration involves political fragmentation. But, we establish also that economic integration might be sometimes deterred by the majority to prevent political fragmentation from happening

On the strategic use of representative democracy in international agreements

We consider as endogenous the choice of the delegation' rule in a political integration process between two countries. We study three potential types of delegation: strong, weak or no delegation, this last case corresponding to a referendum. We show that populations decide to bind themselves by delegating the national policy decision to a "powerfull conservative representative", in order to improve their bargaining position. These non-cooperative behaviors of countries when they decide on their delegation rule induce negative political externalities between countries, which cancel the gains achieved by the internalization of economic externalities in the case of political integration. We then propose two extensions. First, we assume a pre-play game where the countries choose whether or not to initiate political integration. Secondly, we examine the consequences of ratification by referendum. We conclude that a Pareto improvement of the political integration process would be to specify within the international treaty itself the means for its ratification; more precisely, to incorporate a formal ratification procedure, corresponding to an ex post referendum

Implementing Tax Coordination and Harmonization through Voluntary Commitment

Pareto-improving tax coordination, and even tax harmonization, are Nash implementable between sovereign countries without any supranational tax authorities. Following Schelling's approach, we consider voluntary commitment, which constrains countries' respective tax rate choices. We develop a commitment game where countries choose their strategy sets in preliminary stages and play consistently during the final one. We determine the set of tax rates, which are implementable by commitment. This allows countries to reach Pareto-improving equilibriums. We also establish that complete tax harmonization may emerge as the subgame perfect Nash equilibrium of the commitment game as long as the asymmetry between countries remains limited. Our analysis contributes to the rationale of tax ranges and, more broadly, of non binding but self-enforcing commitments (not equivalent to cheap talk) in the context of tax competition

Leadership in Public Good Provision: a Timing Game Perspective

We address in this paper the issue of leadership when two governments provide public goods to their constituencies with cross border externalities as both public goods are valued by consumers in both countries. We study a timing game between two different countries: before providing public goods, the two policymakers non-cooperatively decide their preferred sequence of moves. We establish conditions under which a first- or second-mover advantage emerges for each country, highlighting the role of spillovers and the strategic complementarity or substitutability of public goods. As a result we are able to prove that there is no leader when, for both countries, public goods are substitutable. When public goods are complements for both countries, both countries may emerge as the leader in the game. Hence a coordination issue arises. We use the notion of risk-dominance to select the leading government. Lastly, in the mixed case, the government for whom public goods are substitutable becomes the leader.public good, Spillovers, Subgame Perfect Equilibrium, Strategic Complements, Stackelberg, Pareto Dominance, Risk Dominance