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The Optimal Design of International Trade Institutions: Uncertainty and Escape

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Author Info
B. Peter Rosendorff
Helen V. Milner

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Abstract

International institutions that include an escape clause generate more durable and stable cooperative international regimes and are easier to achieve ex ante. The escape clause is endogenous in a model of repeated trade-barrier setting in the presence of symmetric, two-sided, political uncertainty. They permit, along the equilibrium path, countries to temporarily deviate from their obligations in periods of excessive, unexpected political pressure at some prenegotiated cost. The architects of international agreements optimally choose a cost so that escape clauses are neither too cheap to use (encouraging frequent recourse, effectively reducing the benefits of cooperation) nor too expensive (making their use rare and increasing the chance of systemic breakdown). The international institution's crucial role is to provide information, verifying that the self-enforcing penalty has been paid (voluntarily), rather than to coerce payment. Escape clauses also make agreements easier to reach initially. Their flexibility reassures states that the division of the long-term gains from the agreement is not immutable. © 2001 The IO Foundation and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal International Organization.

Volume (Year): 55 (2001)
Issue (Month): 4 (October)
Pages: 829-857
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Handle: RePEc:tpr:intorg:v:55:y:2001:i:4:p:829-857

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  1. Heinz Hauser & Alexander Roitinger, 2002. "A Renegotiation Perspective on Transatlantic Trade Disputes," University of St. Gallen Department of Economics working paper series 2002 2002-09, Department of Economics, University of St. Gallen. [Downloadable!]
  2. Simon Schropp, 2007. "Revisiting the "Compliance-vs.-Rebalancing" Debate in WTO Scholarship a Unified Research Agenda," HEI Working Papers 29-2007, Economics Section, The Graduate Institute of International Studies, revised Dec 2007. [Downloadable!]
  3. Mikhail Klimenko & Garey Ramey & Joel Watson, 2001. "Recurrent Trade Agreements and the Value of External Enforcement," University of California at San Diego, Economics Working Paper Series 2001-01, Department of Economics, UC San Diego. [Downloadable!]
  4. Tadashi Ito, 2007. "NAFTA and productivity convergence between Mexico and the US," HEI Working Papers 26-2007, Economics Section, The Graduate Institute of International Studies, revised 09 Jun 2009. [Downloadable!]
  5. B. Boockmann & Paul Thurner, 2006. "Flexibility provisions in multilateral environmental treaties," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 6(2), pages 113-135, June. [Downloadable!] (restricted)
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  6. Ronald Fischer & Martín Osorio, 2002. "Why Do We Need Antidumping Rules?," Documentos de Trabajo 134, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  7. repec:att:wimass:1920423 is not listed on IDEAS
  8. Lloyd Gruber, 2003. "Power Politics and the Institutionalization of International Relations," Working Papers 0318, Harris School of Public Policy Studies, University of Chicago. [Downloadable!]
  9. Rahul Mukherji, 2002. "Governing The Taxation Of Digitized Trade," ASARC Working Papers 2002-05, Australian National University, Australia South Asia Research Centre. [Downloadable!]
  10. Kyle Bagwell & Robert W. Staiger, 2004. "Enforcement, Private Political Pressure and the GATT/WTO Escape Clause," NBER Working Papers 10987, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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