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Sustaining Free Trade with Imperfect Private Information about Non-Tariff Barriers

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Author Info
Jee-Hyeong Park
Abstract

This paper examines the issue of sustaining free trade when countries receive imperfect private information about each other’s non-tariff barriers. Because the countries can misrepresent their private belief about other countries’ protection levels, the punishment scheme to deter deviations from free trade should provide right incentives for the countries to elicit the true private information. This incentive constraint (ICP) restricts the length of punishment phases. If the private information is almost perfect, the ICP is not a binding constraint for symmetric countries in sustaining symmetric cooperation. However, the ICP does become a binding constraint if there exists a large enough asymmetry in the countries’ incentives to deviate from free trade, or if there exists a large enough asymmetry in the transparency of countries’ trade policies. Then, a mechanism that publicizes the information about non-tariff barriers, like Trade Policy Review Mechanism (TPRM) of WTO, can play a positive role in restoring cooperation by relaxing the ICP.

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 736.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:736

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Related research
Keywords: International Economic Order; Non-tariff Barriers; Imperfect Private Information; Noncooperative Game;

Find related papers by JEL classification:
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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  1. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
  4. Fudenberg, Drew & Levine, David K., 1991. "An approximate folk theorem with imperfect private information," Journal of Economic Theory, Elsevier, vol. 54(1), pages 26-47, June. [Downloadable!] (restricted)
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  5. Kyle Bagwell & Robert W. Staiger, 1996. "Reciprocal Trade Liberalization," NBER Working Papers 5488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  7. Kandori, Michihiro, 1992. "The Use of Information in Repeated Games with Imperfect Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 581-93, July. [Downloadable!] (restricted)
  8. Robert W. Staiger, 1994. "International Rules and Institutions for Trade Policy," NBER Working Papers 4962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
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  10. Fudenberg, Drew & Levine, David I & Maskin, Eric, 1994. "The Folk Theorem with Imperfect Public Information," Econometrica, Econometric Society, vol. 62(5), pages 997-1039, September. [Downloadable!] (restricted)
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  11. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February. [Downloadable!] (restricted)
  12. Radner, Roy, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 43-57, January. [Downloadable!] (restricted)
  13. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
  14. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May. [Downloadable!] (restricted)
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  15. Sekiguchi, Tadashi, 1997. "Efficiency in Repeated Prisoner's Dilemma with Private Monitoring," Journal of Economic Theory, Elsevier, vol. 76(2), pages 345-361, October. [Downloadable!] (restricted)
  16. repec:att:wimass:19962 is not listed on IDEAS
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