Economic Integration as a Partition Function Game

We analyze the problem of economic integration using a cooperative approach. By explicitly introducing time as an endogenous variable, we make sharp predictions about the timing of admission to coalitions, about the equilibrium coalition structure, about the equilibrium payoff distribution, as well as about the equilibrium length of the admission game. We derive conditions under which a union chooses different paths of admission in order to reach the optimal size; we show that the observed sequencing of admissions to the European Union is not consistent with the existence of perfectly competitive markets to price the admission of candidate countries. Welfare implications are derived.