The Zollverein and the Formation of a Customs Union
The Zollverein, the German customs union of 1834, was the institutional centrepiece of Germany's economic unification.� A bargaining model is applied to analyze the structure of its negotiation process and accession sequence.� The existence of negative coalition externalities, the effect of a coalition of non-participants, led Prusssia to choose sequential over multilateral negotiations.� The nature of these externalities within the areas of financial revenues, trade policy and domestic political economy also explains the observed accession sequence.� The choice of a customs union as institutional structure allowed Prussia to extract higher concessions from other states due to stronger coalition externalities.
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