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Club Enlargement: Early Versus Late Admittance

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  • Mike Burkart

    (SITE)

  • Klaus Wallner

    (Stockholm School of Economics)

Abstract

Within an incomplete contract framework, we analyze the enlargement strategy of a club facing applicants that differ in wealth and reform status. While an applicant benefits from entry, the club only gains if the entrant makes an adjustment investment. The club has a choice between early admittance, using its limited internal enforcement powers to ensure reform, and late admittance conditional on prior reform. Wealthy candidates enter early as the club can charge a higher entrance fee for undiscounted membership benefits. For poor applicants, the club applies a reversed admittance order: A less advanced applicant is admitted early to reform as member, while a more advanced enters late after it has reformed. Moreover, the admittance rents increase in the ratio of reform distance to wealth. The viability of the late admittance strategy depends on the club's commitment ability. If the club can credibly commit to a stage-financing schedule, it can induce applicants to reform without overfunding. In the repeated game, the threat of denying additional funding is not credible, and more overfunding is required for reform.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0253.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0253

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Cited by:
  1. Wallner, Klaus, 2003. "Specific investments and the EU enlargement," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 867-882, May.
  2. Michael Kunin, 2004. "Sequencing of Club Enlargement: "big bang," "gradualism," and internal reform," CERGE-EI Working Papers wp232, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2013. "Political Economy in a Changing World," Levine's Working Paper Archive 786969000000000803, David K. Levine.
  4. Erik Berglof & Mike Burkart & Guido Friebel & Elena Paltseva, 2008. "Widening and Deepening: Reforming the European Union," American Economic Review, American Economic Association, vol. 98(2), pages 133-37, May.
  5. Konstantin Sonin & Georgy Egorov & Daron Acemoglu, 2008. "Dynamics and Stability of Constitutions, Coalitions and Clubs," 2008 Meeting Papers 314, Society for Economic Dynamics.

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