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Does hidden information make trade liberalization more fragile?

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  • Mathias Herzing

Abstract

This paper focuses on the impact of hidden information on strategic interaction in the context of trade agreements. In the presence of informational asymmetry it is possible that a tradeoff between liberalization and sustainability of cooperation emerges. It is shown that it may be optimal to agree on a degree of liberalization associated with a strictly positive ex ante probability of deviation occurring. In that case, cooperation will break down in finite time, and the optimal degree of liberalization cannot be applied indefinitely. Ce mémoire étudie l’impact de l’information cachée sur l’interaction stratégique dans le contexte des accords de commerce. Quand il y a asymétrie de l’information, il est possible qu’émerge une relation d’équivalence entre la libéralisation et la viabilité de la coopération. On montre qu’il peut être optimal de s’entendre sur un degré de libéralisation associéà une probabilité ex ante strictement positive qu’une déviation va se produire. Dans ce cas, la coopération va s’effriter dans une période finie, et le degré optimal de libéralisation ne tient pas indéfiniment.

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  • Mathias Herzing, 2011. "Does hidden information make trade liberalization more fragile?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 561-579, May.
    • Handle: RePEc:wly:canjec:v:44:y:2011:i:2:p:561-579
    DOI: 10.1111/j.1540-5982.2011.01644.x
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    1. Mathias Herzing, 2011. "Does hidden information make trade liberalization more fragile?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 561-579, May.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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