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Pareto-optimal Delegation in Customs Unions

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Author Info
Mark Melatos
Alan D. Woodland

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Abstract

Customs unions constitute agreements to engage in free intra-union trade and to levy common external tariffs on trade with nonmembers. Existing theoretical models do not agree on how the common external tariffs are chosen. In this paper, a model of customs union formation is developed in which the Pareto principle and the assumption of unanimity are used to construct a mechanism for the choice of common external tariffs. The model is structured as a three-stage game in which union members select common external tariffs yielding utility outcomes that are Pareto optimal and dominate the standalone alternative. Numerical examples demonstrate the wide range in the nature of these outcomes. Our results are discussed in relation to the delegation principle developed by Gatsios and Karp and to modeling approaches reported in the customs union literature. The paper emphasizes the importance of modeling the formation of the customs union agreement. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9396.2007.00686.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of International Economics.

Volume (Year): 15 (2007)
Issue (Month): 3 (08)
Pages: 441-461
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Handle: RePEc:bla:reviec:v:15:y:2007:i:3:p:441-461

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  1. Raimondos-Møller, Pascalis & Woodland , Alan D., 2006. "Non-Preferential Trading Clubs," Working Papers 06-2004, Copenhagen Business School, Department of Economics. [Downloadable!]
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This page was last updated on 2009-12-19.

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