Delegation Games in Customs Unions.

The authors study a model in which a customs union trades with countries that behave strategically. Provided that the members of the customs unions are similar but not identical, they show that both in the case in which intraunion transfers are allowed as well as in the one in which they are not, one country may want to delegate authority for making union policy to its partner. The delegation decision depends on whether the policies used by union and nonunion countries are strategic substitutes or complements, and on which union member is more "aggressive." Copyright 1991 by The Review of Economic Studies Limited.