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Trade Agreements as Endogenously Incomplete Contracts

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  • Horn, Henrik
  • Maggi, Giovanni
  • Staiger, Robert

Abstract

We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. In spite of its simplicity, the model yields rich predictions on the structure of the optimal trade agreement and how this depends on the fundamentals of the contracting environment. We argue that taking contracting costs explicitly into account can help explain a number of key features of real trade agreements.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6037.

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Date of creation: Jan 2007
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Handle: RePEc:cpr:ceprdp:6037

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Keywords: endogenously incomplete contracts; GATT; trade agreement; WTO;

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  1. Kyle Bagwell & Robert W. Staiger, 2005. "Enforcement, Private Political Pressure and the Gatt/Wto Escape Clause," Discussion Papers, Columbia University, Department of Economics 0405-13, Columbia University, Department of Economics.
  2. 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, University of Chicago Press, vol. 31(1), pages S179-204, January.
  3. Maggi, Giovanni & Rodriguez-Clare, Andres, 2005. "A Political-Economy Theory of Trade Agreements," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5321, C.E.P.R. Discussion Papers.
  4. Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
  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. Brian R. Copeland, 1990. "Strategic Interaction among Nations: Negotiable and Non-negotiable Trade Barriers," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 84-108, February.
  7. Costinot, Arnaud, 2008. "A Comparative Institutional Analysis of Agreements on Product Standards," University of California at San Diego, Economics Working Paper Series qt09f6660d, Department of Economics, UC San Diego.
  8. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  9. Henrik Horn, 2006. "National Treatment in the GATT," American Economic Review, American Economic Association, vol. 96(1), pages 394-404, March.
  10. Kyle Bagwell & Robert W. Staiger, 1988. "A Theory of Managed Trade," NBER Working Papers 2756, National Bureau of Economic Research, Inc.
  11. 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, University of Chicago Press, vol. 34(2), pages 471-513, 06.
  12. Pierpaolo Battigalli & Giovanni Maggi, 2003. "International agreements on product standards: an incomplete-contracting theory," Working Papers 229, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  13. Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
  14. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
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