Trade Agreements, Political Economy and Endogenously Incomplete Contracts
AbstractWe develop a political economy model of trade agreements following along the line of Grossman and Helpman (1995a) yet incorporating contracting costs, uncertainty and multiple policy instruments. We show that rent-seeking efforts do not affect tariff rates as they are offset by the substitution effect of domestic production subsidies. Similar to Horn et al (2010), we find the coexistence of uncertainty and contracting costs make optimal trade agreements incomplete contracts. Our model helps explain differential treatment on subsidies, countervailing duties, and the national treatment principle - all key provisions of the current WTO agreement.
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Bibliographic InfoPaper provided by Canadian Agricultural Trade Policy Research Network in its series Working Papers with number 116850.
Date of creation: Jun 2011
Date of revision:
Trade agreement; political economy; contracting cost; uncertainty JEL Classification:; Agricultural and Food Policy; International Relations/Trade; Political Economy; Public Economics;
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Working Paper Series
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