Optimal remedies in international trade agreements
AbstractThis paper takes a mechanism-design approach to characterize a politically optimal trade agreement under the assumption that governments have private information about the fluctuating political pressure they face from domestic interest groups to restrict trade. The optimal mechanism under these changing circumstances involves a remedy system for breach of trade agreements that specifies less-than-proportional retaliations against deviating parties. This result is in contrast to the conventional wisdom in the literature regarding the efficiency of the Reciprocity Principle as a rule of renegotiation in trade agreements. I also consider an institutional structure in which only commensurate retaliations are practical but governments can employ a public randomizing device to authorize retaliations. I show that it is optimal to authorize retaliations only randomly. This suggests a role for the WTO dispute settlement process as a public randomizing device.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 54 (2010)
Issue (Month): 3 (April)
Contact details of provider:
Web page: http://www.elsevier.com/locate/eer
Breach remedies Trade agreements Reciprocity principle World Trade Organization Safeguards Randomizing device;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
- Rosendorff, B Peter, 1996.
"Voluntary Export Restraints, Antidumping Procedure, and Domestic Politics,"
American Economic Review,
American Economic Association, vol. 86(3), pages 544-61, June.
- Rosendorff, B.P., 1995. "Voluntary Export Restraints, Anti-Dumping Procedure and Domestic Politics," Papers 9512, Southern California - Department of Economics.
- Kyle Bagwell & Robert W. Staiger, 2005. "Enforcement, Private Political Pressure, and the General Agreement on Tariffs and Trade/World Trade Organization Escape Clause," The Journal of Legal Studies, University of Chicago Press, vol. 34(2), pages 471-513, 06.
- Kyle Bagwell & Robert W. Staiger, 1997.
"An Economic Theory of GATT,"
NBER Working Papers
6049, National Bureau of Economic Research, Inc.
- Robert C. Feenstra & Tracy R. Lewis, 1987.
"Negotiated Trade Restrictions with Private Political Pressure,"
NBER Working Papers
2374, National Bureau of Economic Research, Inc.
- Feenstra, Robert C & Lewis, Tracy R, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1287-307, November.
- Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
- Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages S179-204, January.
- Nuno Limao & Kamal Saggi, 2011.
"Size Inequality, Coordination Externalities and International Trade Agreements,"
NBER Working Papers
17603, National Bureau of Economic Research, Inc.
- Limão, Nuno & Saggi, Kamal, 2013. "Size inequality, coordination externalities and international trade agreements," European Economic Review, Elsevier, vol. 63(C), pages 10-27.
- Nuno Limão & Kamal Saggi, 2013. "Size Inequality, Coordination Externalities and International Trade Agreements," Vanderbilt University Department of Economics Working Papers 13-00013, Vanderbilt University Department of Economics.
- Kamal Saggi & Nuno Limao, 2011. "Size Inequality, Coordination Externalities and International Trade Agreements," Vanderbilt University Department of Economics Working Papers 1115, Vanderbilt University Department of Economics.
- Giovanni Maggi & Robert W. Staiger, 2009.
"Breach, Remedies and Dispute Settlement in Trade Agreements,"
NBER Working Papers
15460, National Bureau of Economic Research, Inc.
- Giovanni Maggi & Robert W. Staiger, 2009. "Breach, Remedies and Dispute Settlement in Trade Agreements," Cowles Foundation Discussion Papers 1735, Cowles Foundation for Research in Economics, Yale University.
- Maggi, Giovanni & Staiger, Robert, 2009. "Breach, Remedies and Dispute Settlement in Trade Agreements," CEPR Discussion Papers 7527, C.E.P.R. Discussion Papers.
- Kara M. Reynolds & Chad P. Bown, 2014. "Trade Flows and Trade Disputes," Working Papers 2014-05, American University, Department of Economics.
- Bowen, Renee, 2011. "Forbearance in Optimal Multilateral Trade Agreements," Research Papers 2085, Stanford University, Graduate School of Business.
- Gea Myoung Lee, 2012.
"Optimal International Agreement and Treatment of Domestic Subsidy,"
26-2012, Singapore Management University, School of Economics.
- Gea Myoung Lee, 2011. "Optimal International Agreement and Treatment of Domestic Subsidy," Working Papers 01-2011, Singapore Management University, School of Economics.
- Beshkar, Mostafa, 2010. "Trade skirmishes safeguards: A theory of the WTO dispute settlement process," Journal of International Economics, Elsevier, vol. 82(1), pages 35-48, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.