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Breach, Remedies and Dispute Settlement in Trade Agreements

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  • Giovanni Maggi
  • Robert W. Staiger

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15460.

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Date of creation: Oct 2009
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Publication status: published as “The Role of Dispute Settlement Proc edures in International Trade Agreements,” The Quarterly Journal of Economics , vol. 126(1), pp. 475 - 515, February 2011 (with Robert Staiger).
Handle: RePEc:nbr:nberwo:15460

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  1. 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, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University 19, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  2. MARTIN, Alberto & VERGOTE, Wouter, . "On the role of retaliation in trade agreements," CORE Discussion Papers RP -2037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers, C.E.P.R. Discussion Papers 827, C.E.P.R. Discussion Papers.
  4. 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.
  5. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 187-223, February.
  6. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, Elsevier, vol. 24(3), pages 287-290.
  7. Beshkar, Mostafa, 2010. "Optimal remedies in international trade agreements," European Economic Review, Elsevier, Elsevier, vol. 54(3), pages 455-466, April.
  8. Beshkar, Mostafa, 2010. "Trade skirmishes safeguards: A theory of the WTO dispute settlement process," Journal of International Economics, Elsevier, Elsevier, vol. 82(1), pages 35-48, September.
  9. Horn, Henrik & Mavroidis, Petros C., 2008. "The WTO Dispute Settlement System 1995–2006: Some Descriptive Statistics," Working Paper Series, Research Institute of Industrial Economics 740, Research Institute of Industrial Economics.
  10. 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, Institute of Economic Research, Hitotsubashi University gd09-063, Institute of Economic Research, Hitotsubashi University.
  11. Wilfred J. Ethier, . "Punishment and Dispute Settlement in Trade Agreements," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 01-14, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  12. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  13. 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.
  14. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
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