Size versus scope: on the trade-off facing economic unions

This paper analyzes the relationship between the size of an economic union and the degree of policy centralization. We consider a political economy setting in which elected representatives bargain over the degree of centralization within the union. In our model, strategic delegation affects the identity of the representatives, and hence the equilibrium policy outcome. We show that the relationship between the extensive and the intensive margin of centralization may be non-monotonic: Up to a certain threshold a larger size implies deeper integration, whereas beyond that threshold centralization declines with further increases in size. We also show that freezing the level of centralization and associate memberships can mitigate this trade-off.