Investigating Supply and Demand in European Cohesion Policy: Micro-Foundations of Macro-Behaviours

Abstract

European Cohesion Policy is a complex scheme that allocates financial resources to European regions. The implementation of the policy is based on an articulated multi-level governance that involves local and national authorities and the European Commission. Local authorities often face difficulties in using structural funds due to limits in their administrative capacity (supply) and/or inefficiencies in adequately stimulating applications’ submission (demand). By modelling and simulating the implementation of the policy, we explore how operations and decisions at the local authorities’ and potential applicants’ level (micro-foundations) explain emerging patterns of funds’ absorption at a regional level (macro-behaviours). Building upon a mixed-methods approach combining field research and computer simulation, we develop a model capturing the key cause–effect relationships among agents and resources within the Cohesion Policy supply-and-demand system. The outcomes elucidate how poor local administrative capabilities, including staff skills, may entail delays and low absorption performances, while showcasing the factors affecting potential applicants’ decision to submit.