Economic Integration as a Partition Function Game.

This paper provides a methodology to study coalition formation problems with externalities and heterogeneous players, whensome subset of the players can act as "coalition developers" over time. The framework provided here allows to explicitly predict the timing of admission to coalitions, the equilibrium coalition structure and payoff distribution as well as the equilibrium length of the admission game. We derive conditions on the availability of side-payments under which a union chooses to delay the admission of admissible countries. We show that the observed sequencing of the admissions to the European Union is not consistent with the existence of perfectly competitive markets to price the admisson of candidate countries. Welfare implications are derived.