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On the Role and Design of Dispute Settlement Procedures in International Trade Agreements

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Author Info
Giovanni Maggi
Robert W. Staiger

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Abstract

Formal economic analysis of trade agreements typically treats disputes as synonymous with concerns about enforcement. But in reality, most WTO disputes involve disagreements of interpretation concerning the agreement, or instances where the agreement is simply silent. And some have suggested that the WTO's Dispute Settlement Body (DSB) might serve a useful purpose by granting "exceptions" to rigid contractual obligations in some circumstances. In each of these three cases, the role played by the DSB amounts to "completing" various dimensions of an incomplete contract. Moreover, there is a debate among legal scholars on whether or not precedent-setting in DSB rulings may enhance the performance of the institution. All of this points to the importance of understanding the implications of the different possible degrees of activism in the role played by the DSB. In this paper we bring formal analysis to bear on this broad question. We characterize the choice of contractual form and DSB role that is optimal for governments under various contracting conditions. A novel feature of our approach is that it highlights the interaction between the design of the contract and the design of the dispute settlement procedure, and it views these as two components of a single over-arching institutional design problem.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14067.

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Date of creation: Jun 2008
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Handle: RePEc:nbr:nberwo:14067

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Find related papers by JEL classification:
D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341.
  2. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July. [Downloadable!] (restricted)
    Other versions:
  3. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages S179-204, January.
  4. Nicola Gennaioli & Andrei Shleifer, 2007. "The Evolution of Common Law," Journal of Political Economy, University of Chicago Press, vol. 115, pages 43-68. [Downloadable!] (restricted)
  5. Mikhail Klimenko & Garey Ramey & Joel Watson, 2001. "Recurrent Trade Agreements and the Value of External Enforcement," University of California at San Diego, Economics Working Paper Series 2001-01, Department of Economics, UC San Diego. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2006. "Trade Agreements as Endogenously Incomplete Contracts," NBER Working Papers 12745, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Horn, Henrik & Mavroidis, Petros C., 2003. "US Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia: what should be required of a safeguard investigation?," World Trade Review, Cambridge University Press, vol. 2(03), pages 395-430, November. [Downloadable!]
  9. Bagwell, K. & Staiger, R.W., 1988. "A Theory Of Managed Trade," Papers e-88-39, Stanford - Hoover Institution.
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  10. Fon, Vincy & Parisi, Francesco, 2007. "On the optimal specificity of legal rules," Journal of Institutional Economics, Cambridge University Press, vol. 3(02), pages 147-164, August. [Downloadable!]
  11. 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. [Downloadable!]
  12. Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Game Theory and Information 9902003, EconWPA. [Downloadable!]
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  13. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2006. "Should Courts always Enforce what Contracting Parties Write?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  14. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 662-684, October. [Downloadable!] (restricted)
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  15. 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. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Horn, Henrik, 2009. "The Burden of Proof in National Treatment Disputes and the Environment," Working Paper Series 791, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  2. Ceva, Emanuela & Fracasso, Andrea, 2009. "Seeking Mutual Understanding. A Discourse Theoretical Analysis of the WTO Dispute Settlement System," MPRA Paper 14356, University Library of Munich, Germany. [Downloadable!]
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