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Club Enlargement: Early Versus Late Admittance


  • Mike Burkart


  • Klaus Wallner

    (Stockholm School of Economics)


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.

Suggested Citation

  • Mike Burkart & Klaus Wallner, 2000. "Club Enlargement: Early Versus Late Admittance," Econometric Society World Congress 2000 Contributed Papers 0253, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0253

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    References listed on IDEAS

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    Cited by:

    1. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2012. "Dynamics and Stability of Constitutions, Coalitions, and Clubs," American Economic Review, American Economic Association, vol. 102(4), pages 1446-1476, June.
    2. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2015. "Political Economy in a Changing World," Journal of Political Economy, University of Chicago Press, vol. 123(5), pages 1038-1086.
    3. 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 133-137, May.
    4. 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 - Economics Institute, Prague.
    5. Wallner, Klaus, 2003. "Specific investments and the EU enlargement," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 867-882, May.

    More about this item

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General


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