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Trade Agreements as Endogenously Incomplete Contracts

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Author Info

  • Horn, Henrik

    () (Research Institute of Industrial Economics)

  • Maggi, Giovanni

    (Princeton University)

  • Staiger, Rikard W.

    (Stanford University)

Abstract

We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. Inspite 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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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 689.

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Length: 50 pages
Date of creation: 03 Jan 2007
Date of revision:
Handle: RePEc:hhs:iuiwop:0689

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Web page: http://www.ifn.se/
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Related research

Keywords: Trade Agreement; WTO; GATT; Endogenously Incomplete Contracts;

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References

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  1. 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.
  2. Giovanni Maggi & Andrés Rodríguez-Clare, 2007. "A Political-Economy Theory of Trade Agreements," American Economic Review, American Economic Association, vol. 97(4), pages 1374-1406, September.
  3. Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Henrik Horn, 2006. "National Treatment in the GATT," American Economic Review, American Economic Association, vol. 96(1), pages 394-404, March.
  7. Kyle Bagwell & Robert W. Staiger, 1989. "A Theory of Managed Trade," Discussion Papers 801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  9. Bagwell,K. & Staiger,R.W., 2004. "Enforcement, private political pressure and the GATT/WTO escape clause," Working papers 23, Wisconsin Madison - Social Systems.
  10. 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.
  11. 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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