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Breach, Remedies and Dispute Settlement in Trade Agreements

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  • Maggi, Giovanni
  • Staiger, Robert

Abstract

We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of "property rights" or "liability rules." We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus "fighting it out."

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7527.

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Date of creation: Nov 2009
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Handle: RePEc:cpr:ceprdp:7527

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Keywords: breach remedies; dispute settlement; international trade agreements;

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  1. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
  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, vol. 31(1), pages S179-204, January.
  3. 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.
  4. Horn, Henrik & Mavroidis, Petros C., 2008. "The WTO Dispute Settlement System 1995–2006: Some Descriptive Statistics," Working Paper Series 740, Research Institute of Industrial Economics.
  5. Jee-Hyeong Park, 2009. "Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO," Global COE Hi-Stat Discussion Paper Series gd09-063, Institute of Economic Research, Hitotsubashi University.
  6. Martin, Alberto & Vergote, Wouter, 2008. "On the role of retaliation in trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 61-77, September.
  7. Park, Jee-Hyeong, 2009. "Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO," CCES Discussion Paper Series 19, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  8. Wilfred J. Ethier, . "Punishment and Dispute Settlement in Trade Agreements," EPRU Working Paper Series 01-14, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
  10. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  11. Beshkar, Mostafa, 2010. "Optimal remedies in international trade agreements," European Economic Review, Elsevier, vol. 54(3), pages 455-466, April.
  12. Beshkar, Mostafa, 2010. "Trade skirmishes safeguards: A theory of the WTO dispute settlement process," Journal of International Economics, Elsevier, vol. 82(1), pages 35-48, September.
  13. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February.
  14. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
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