Abstract
Summary Why do some countries join the EU earlier than others, why do others wait? In order to address this question we apply the theory of investment under uncertainty (Dixit and Pindyck, 1994) to the decision on EU-membership. We present the idea in a simplified model of two periods to study how the value of waiting depends among other things on the expected benefits, the degree of uncertainty and the adjustment costs. The approach gives rise to a country’s position to deliberately postpone a membership in order to keep the option to join later if this is desirable. The model, thus, may explain delayed accession to the EU. We apply this framework to Switzerland by quantifying some of the crucial determinants of the value of waiting and qualitatively compare these findings with the experiences of other countries. We find evidence that adjustment costs are relatively high for Switzerland whereas net annual benefits are limited and subject to an increased degree of uncertainty.
Highlights
Many countries are faced with the decision of whether to become part of a regional supranational institution, be it in Europe, the Americas or in Asia
The question arises how to interpret the Swiss behaviour, given the fact that many economic studies came to the conclusion throughout the last decades that the country would overall have benefited from an European Union (EU)-membership
Given the common conclusion of the mentioned economic studies and using the calculations of UBS (2000) that real consumption per capita would have to be higher by 1.2% annually in period 2 in order to compensate for the adjustment costs in period 1, the implied total economic adjustment costs in case of EU accession are approximately equal to 100 billion Swiss francs
Summary
Many countries are faced with the decision of whether to become part of a regional supranational institution, be it in Europe, the Americas or in Asia. To Wait or Not to Wait: Swiss EU-Membership decision for a whole country, these studies take an approach which fits the traditional investment theory that basically compares the discounted expected net benefits in future with the accession or adjustment costs in presence. This traditional approach has, in our view, four shortcomings. The theory of investment under uncertainty (Dixit and Pindyck, 1994) applied to a whole country is, in our view, able to offer the required new perspective It provides the rationale for a possible third position about EU-membership which proposes to wait in order to keep the option to join at a later stage if conditions turn out to be advantageous.
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