Theoretical Mathematics & Applications

Applied Mathematical Theory of Governance. Impact of Group Size To Governance

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•                                                  Abstract

  This paper analyzes governance mechanisms F(X,Y,T) for different group sizes T. The European sovereign debt crisis has demonstrated the need of efficient governance for different group sizes. I find that self-governance only works for sufficiently homogenous and small neighbourhoods T < T*. Second, as long as the union expands T > T*, the effect of credible self-governance decreases. Third, spill-over effects ζ amplify the size effect. Fourth, I show that sufficiently large monetary unions, T > T**, are better off with costly but external governance or a free market mechanism. Finally, intermediate-size unions T*< T < T** are most difficult to govern efficiently.