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(When) Does Tit-for-tat Diplomacy in Trade Policy Pay Off?

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  • Barbara Dluhosch
  • Daniel Horgos

Abstract

In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of noncooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 36 (2013)
Issue (Month): 2 (02)
Pages: 155-179

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Handle: RePEc:bla:worlde:v:36:y:2013:i:2:p:155-179

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