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Recurrent Trade Agreements and the Value of External Enforcement

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  • Klimenko, Mikhail
  • Ramey, Garey
  • Watson, Joel

Abstract

This paper presents a theory of dynamic trade agreements in which external institutions, such as the WTO, play a central role in supporting credible enforcement. In our model, countries engage in ongoing negotiations, and as a consequence cooperative agreements become unsustainable in the absence of external enforcement institutions. By using mechanisms such as delays in dispute resolution and direct penalties, enforcement institutions can restore incentives for cooperation, despite the lack of any coercive power. The occurrence of costly trade disputes, and the feasibility of mechanisms such as escape clauses, depend on the adaptability of enforcement institutions in their use of information.

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Bibliographic Info

Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt9xm2x5w7.

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Date of creation: 01 Jan 2001
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Handle: RePEc:cdl:ucsdec:qt9xm2x5w7

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Keywords: International trade; WTO;

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References

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  1. Bagwell, K. & Staiger, R.W., 1988. "A Theory Of Managed Trade," Working Papers e-88-39, Hoover Institution, Stanford University.
  2. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February.
  3. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  4. Garey Ramey & Joel Watson, 1999. "Contractual Intermediaries," Cowles Foundation Discussion Papers 1235, Cowles Foundation for Research in Economics, Yale University.
  5. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  6. Kyle Bagwell & Robert W. Staiger, 2002. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Discussion Papers 0102-37, Columbia University, Department of Economics.
  7. Ludema, Rodney D., 2001. "Optimal international trade agreements and dispute settlement procedures," European Journal of Political Economy, Elsevier, vol. 17(2), pages 355-376, June.
  8. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation During the Formation of Free Trade Areas," Discussion Papers 1048, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  10. Kletzer, Kenneth M. & Wright, Brian D., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research, Working Paper Series qt4qg3c42v, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  11. Hungerford, Thomas L., 1991. "GATT: A cooperative equilibrium in a noncooperative trading regime?," Journal of International Economics, Elsevier, vol. 31(3-4), pages 357-369, November.
  12. Bagwell,K. & Staiger,R.W., 2004. "Enforcement, private political pressure and the GATT/WTO escape clause," Working papers 23, Wisconsin Madison - Social Systems.
  13. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
  14. David G. Pearce, 1987. "Renegotiation-Proof Equilibria: Collective Rationality and Intertemporal Cooperation," Cowles Foundation Discussion Papers 855, Cowles Foundation for Research in Economics, Yale University.
  15. 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.
  16. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
  17. Riezman, Raymond G., 1990. "Dynamic Tariffs with Asymmetric Information," Working Papers 720, California Institute of Technology, Division of the Humanities and Social Sciences.
  18. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  19. Dan Kovenock & Marie Thursby, 1992. "GATT, Dispute Settlement and Cooperation," NBER Working Papers 4071, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Sebastian Kranz, 2012. "Discounted Stochastic Games with Voluntary Transfers," Levine's Working Paper Archive 786969000000000423, David K. Levine.
  2. Limao, Nuno & Saggi, Kamal, 2006. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," Policy Research Working Paper Series 3873, The World Bank.
  3. Meredith Crowley, 2006. "Why are safeguards needed in a trade agreement?," Working Paper Series WP-06-06, Federal Reserve Bank of Chicago.
  4. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, vol. 88(1), pages 47-61.
  5. Giovanni Maggi & Robert W. Staiger, 2008. "On the Role and Design of Dispute Settlement Procedures in International Trade Agreements," NBER Working Papers 14067, National Bureau of Economic Research, Inc.
  6. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.

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