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Title: Delegation Games in Customs Unions

Author(s): Konstantine Gatsios and Larry Karp

Publication Date: October 1989

Keyword(s): Customs Union and Trade Policy

Programme Area(s): International Trade and Regional Economics

Abstract: We study a model in which a customs union trades with countries that behaved strategically. If the members of the customs union are similar but not identical, one country will want to delegate authority for making union policy to its partner. Even if side-payments within the union are permitted, union welfare may be higher if one country chooses union policy to maximize its own welfare, rather than having a supra-national agent choosing union policy to maximize joint welfare. The delegation decision depends on whether the policies used by union and non-union countries are strategic substitutes or complements and on which union member is more "aggressive".

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Bibliographic Reference

Gatsios, K and Karp, L. 1989. 'Delegation Games in Customs Unions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=337