Transcript Decision Making

Decision Making
Jan Fidrmuc
Brunel University
Introduction



Which decisions-making powers should be
transferred to the EU and which should
remain in the hands of national
governments?
How much influence do national governments
have in the EU?
Can the EU make decisions effectively?
Outline
1.
2.
3.
4.
5.
Distribution of Power and Subsidiarity
Theory of Fiscal Federalism
Qualified Majority Voting
Efficiency of Decision Making
Power Indices
Distribution of Power and Subsidiarity

Key question: “Which level of government
should be responsible for each task or policy
decisions?”





Different levels of policy making:


Setting foreign policy
Speed limits
School curricula
Trade policy
Local, regional, national, EU
Task allocation = ‘competencies’ in EU jargon
Subsidiarity and Proportionality
Principles

Subsidiarity:



Proportionality:


Decisions should be made as close to the people as
possible
EU should not take action unless doing so is more
effective than action taken at national, regional or
local level.
EU should undertake only minimum action
necessary
Motivation: to limit “creeping competencies”, i.e.
growing role of EU in policy making
3 Pillars and task allocation


3 Pillar structure delimits the allocation of
power.
1st pillar: Community (EU) jurisdiction.



Single market issues, competition, trade policies,
monetary integration.
EU has final say, member states cannot opt out.
2nd and 3rd pillar: national jurisdiction.



Foreign/security policy, justice/home affairs.
Members may pursue cooperation but are not
bound by EU decisions they disagree with.
Example: Schengen Accord.
Theory of Fiscal federalism


Theoretical analysis can help determine whether
centralization or decentralization is optimal
Origins of the theory: Power to tax

Which taxes should be set at the national vs subnational level?
Theory of Fiscal federalism

1.
2.
3.
4.
5.
Basic trade-offs:
Diversity and local informational advantage
Scale economies
Spillovers (externalities)
Jurisdictional competition
Democracy
Diversity and Local Information
euros

Consider provision of a public
good when regions have
different preferences (demand MV
functions): Region 1 values the
B
public good less than Region MC per
person
A
2.
Optimal quantity equates
marginal cost and marginal
MV
value of the public good
D
Under decentralization, local
Q
Q
governments have an
information advantage and can
MC=marginal cost;
MV=marginal value
implement optimal allocations:
Qd1 and Qd2.
c,2

D2
Davg
c,2

1
d1
c,1&2
Qd2
Quantity
Diversity and Local Information



Centralization (one-size-fitsall policy) is inefficient
because it provides too
much public good for R1 and
too little for R2.
Welfare loss of R 1 and 2 is
area A and B, respectively.
Examples:
 Public transport,
 Schools,
 Language regime in a
multi-lingual country.
euros
MVc,2
B
MC per
person
A
D2
Davg
MVc,2
D1
Qd1
Qc,1&2
Qd2
Quantity
Economies of Scale



Costs of providing public good
euros
may fall with scale
 E.g. single national rail or bus
network may be more efficient
than many regional ones.
Different marginal costs apply in
centralized and decentralized
case.
Region 1: welfare gain C vs loss
D  centralization may be
preferred.
 National defense and foreign
policy
MC p.p.
(decentralised)
C
MC p.p.
(centralised)
D
Davg
D1
Qd1
Qc,1&2
Quantity
Spillovers





Prisoners’ dilemma situations.
Examples:
 Environmental policies.
 Tax/VAT competition.
If decentralised, each region
chooses a level of public good
that is too low.
 e.g. Qd2 for Region 2.
Two-region gain from
centralisation is area A.
Similar conclusion with
negative spillovers: Q too high
under decentralization.
euros
Private and
Social Marginal
Cost
MCc
A
Combined
region 1 & 2
Marginal
Benefit Curve
MCd
Region 2’s Marginal
Benefit Curve
(demand curve)
Qd2
Qc,1&2
Quantity
Jurisdictional Competition

Voters influence policies through:






Voice: voting, party activism, protest, etc.
Exit: by moving to another region/country (voting
with your feet, Tiebout, JPE 1956)
Voting with one’s feet common, especially at
sub-national level
Firms are particularly mobile and responsive
to local/national policies
Decentralization: governments must deliver
good policies or risk losing tax payers
Centralization: little possibility for exit
Democracy as a Control Mechanism



Politicians offer voters a ‘package’ of policies
Local government can offer package that better
reflects local needs
Decentralization gives voters better control over
policies

The same voter can support different parties in
national and local elections
Summary

Decentralization: advantages






Policies reflect local conditions and needs
Voters have better democratic control over policies
Centralization optimal when economies of scale
and/or spillovers are important.
1st pillar (economy): large spillovers
2nd pillar (foreign/security policies): important
economies of scale but also large differences in
preferences across countries
3rd pillar (justice/home affairs) – intermediate case:
moderate economies of scale and moderate
diversity in preferences
Efficiency of decision making


Fiscal federalism theory: which decisions should
be made at the EU level
Focus now: How does the EU make its
decisions? How likely is a decision-making
gridlock? What was the impact of enlargement?



e.g., Institutional changes in Constitutional/Lisbon
Treaty, Nice Treaty
Qualified majority voting (QMV)
Enlargement-related institutional reform.
Qualified Majority Voting

Most EU decisions made by co-decision
procedure




Proposal adopted in the Council of Ministers by
QMV and in the EP by majority voting
Voting in the Council reflects States’ national
interests
QMV requires more than a simple majority to
approve a decision
This makes it easier for small Member States
to block decisions
QMV History




Before November 2004: Basic form
unchanged since the 1958 Treaty of Rome.
Post-2004: Nice Treaty QMV rules, unless
replaced by Lisbon Treaty rules.
Constitutional Treaty rules supposed to be
effective from 2009 but rejected in referenda
in France and the Netherlands.
Lisbon Treaty rules effective from 2014, or
2017 if delay requested by member states;
rejected in referendum in Ireland
Pre-2004 QMV



Number of votes not perfectly proportional to
population:
Total number of votes in the EU15: 87
Threshold for winning majority: 62 votes
 ‘qualified majority’: about 71% of votes required
to adopt proposal.


Relatively large coalition required to win a
vote.
Relatively small coalition of countries can
block a vote.
Nice Treaty Reforms
Two main changes:
1. QMV rules more complex: two new criteria in
addition to votes




votes: 255 votes out of 345 Council votes in EU27
(74%)
number of members: half of the member states,
i.e. 14 out of 27
population: 62% of EU population.
2. Votes reallocated in favour of big nations
Nice-Treaty QMV Votes
Country
Votes
Population
Austria
10
8.1
Belgium
12
Bulgaria
Country
Votes
Population
Latvia
4
2.4
10.2
Lithuania
7
3.7
10
8.2
Luxembourg
4
0.4
Cyprus
4
0.8
Malta
3
0.4
Czech Rep.
12
10.3
Netherlands
13
15.8
Denmark
7
5.3
Poland
27
38.7
Estonia
4
1.4
Portugal
12
10
Finland
7
5.2
Romania
14
22.5
France
29
59
Slovakia
7
5.4
Germany
29
82
Slovenia
4
2
Greece
12
10.5
Spain
27
39.4
Hungary
12
10.1
Sweden
10
8.9
Ireland
7
3.7
UK
29
59.2
Italy
29
57.6
Constitutional Treaty

Nice Treaty QMV rules: relatively small
coalition can block important decisions.


CT QMV rules: proposal wins if backed by
member states with




Risk that Council’s becomes deadlocked
At least 65% of EU population
At least 55% of member states.
At least 15 member states (irrelevant if the EU
has 27 or more members: 15/27=56%)
Reallocation of vote shares: large nations
gain (except Spain and Poland)
Lisbon Treaty


Lisbon QMV rules replicate CT rules
Proposal wins if backed by member states
with



At least 65% of EU population
At least 55% of member states.
Unless replaced by Lisbon Treaty or another
new treaty, Nice Treaty rules remain in effect
QMV: Shadow Voting



QMV is rarely actually used by the Council
Most decision made by ‘consensus’
Shadow voting:



If country knows it would be outvoted, it usually
joins the consensus
Otherwise, the vote does not take place to avoid
failure
QMV rules matter because they help countries
determine the likely outcome if vote were held
EU Decision-making Efficiency



1.
2.
3.

Efficiency in decision making: ability to
reach decisions
Voting rules and thresholds required to
accept a proposal are crucial
Formal Measures:
Passage Probability.
Blocking coalition analysis
Normalised Banzhaf Index.
Many others are possible
Passage Probability

The number of all possible winning coalitions
divided by the number of all possible coalitions.



Passage probability equals probability of
winning if all coalitions are equally likely.


i.e. if countries’ voting behavior is random
Caveat: very imperfect measure.


E.g.: almost 33 ths possible coalitions in EU15;
Over 33 million possible coalitions in EU25.
Proposals and countries’ positions not random
But useful to measure decision-making
efficiency.
Historical Passage Probabilities
•Source: Baldwin & Widgren (2005)
Blocking-coalition analysis




Ability of ‘likely’ coalitions to block EU decisions.
Less formal and easier to think about.
Probably close to what EU leaders had in mind.
Example: “Newcomers” and “Poor” in EU27




Newcomers: 12 new member states
Poor: Newcomers+4 ‘cohesion’ members (ES, PT,
GR & IE)
‘Poor’ exceed the Nice Treaty blocking
thresholds of votes and member states
‘Newcomers’ exceed the votes threshold only
Example: 2 blocking coalitions, Nice rules
200
EU27-population threshold
(millions of citizens)
Poor coalition votes
Newcomers
coalition votes
Council-votes
threshold
Number-of-Members
threshold
183
170
166
108
106
91
14 16 12
0
Members
Votes
Population
Normalized Banzhaf Index (NBI)



Power to break a winning coalition
NBI is Member’s share of swing votes
Caveat: NBI disregards issues such as
agenda-setting power, and again assumes
voting behavior is ‘random’
Normalized Banzhaf Index


Consider all possible ‘random’ coalitions
n voters: number of possible coalitions is 2n.




Example with 3 voters: ABC
Possible coalitions: ABC, AB, AC, BC, A, B, C, [none]
Compute the number of winning coalition in which the
voter/nation is pivotal, i.e. the coalition would fail if the
voter defects
BNI is the ratio of the number of coalitions in which
the voter/nation is pivotal over all possible coalitions

BNI measures the probability that the voter is a ‘deal breaker’
Power measures: Example







Why use complicated formal power measures
instead of vote shares?
Simple example: 3 voters, A, B & C
A = 40 votes, B=40 votes, C=20 votes
Need 50% of votes to win.
All equally powerful!
Suppose now the threshold rises to 80 votes.
C loses all power.
Distribution of power in the EU

For EU15, NBI is very similar to share of Council votes,
so the distinction is not so important
14%
Power measures in EU15
12%
10%
NBI
Vote share
8%
6%
4%
2%
0%
D
UK
F
I
E
NL
Gr
B
P
S
A
DK
SF
Ire
L
11.2%
11.2%
11.2%
11.2%
9.2%
5.9%
5.9%
5.9%
5.9%
4.8%
4.8%
3.6%
3.6%
3.6%
2.3%
Vote share 11.5%
11.5%
11.5%
11.5%
9.2%
5.7%
5.7%
5.7%
5.7%
4.6%
4.6%
3.4%
3.4%
3.4%
2.3%
NBI
Do power measures matter?
Budget Share/Population
Share
12
10
Luxembourg
8
6
4
2
0
0
5
10
15
Vote Share/Population Share
20
25
Budget Share/Population Share
Do power measures matter?
4.5
Ireland
4
3.5
Greece
3
2.5
Belgium
2
Spain
y = 0.9966x + 0.0323
R2 = 0.7807
Portugal
Denmark
1.5
France
Germany
1
0.5
Finland
Italy
Austria
NL
UK
Sweden
0
0
1
2
3
Vote Share/Population Share
4