DP2667 Market Mechanisms for Policy Decisions

Author(s): Alessandra Casella

Publication Date: January 2001

Keyword(s): European Union , Policy Coordination , Stability Pact , Voting

JEL(s): F33 , H41 , P16

Programme Areas: International Macroeconomics , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP2667.asp

The thesis of this Paper is that more transparent, rule-bound and subtle mechanisms for policy coordination will be needed to ensure the success of an enlarged European Union. A common policy is a public good with distributional implications. Economists have developed a large number of plausible market mechanisms for the efficient provision of public goods, and the European Union, with its limited number of members and relative ease of information is a promising ground for such schemes. An important open area of applied research is thus the tailoring of incentive schemes to the specific needs of the European Union and its policy choices. The Paper discusses two possible examples: a system of tradable deficit permits to implement the fiscal constraints imposed by the Maastricht treaty; and a rule allowing country representatives to shift their own votes intertemporally when deliberations are taken by vote in periodic committee meetings.