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The Case for Auctioning Countermeasures in the WTO

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  • Kyle Bagwell
  • Petros C. Mavroidis
  • Robert W. Staiger

Abstract

A prominent problem with the WTO dispute settlement procedures is the practical difficulty faced by small and developing countries in finding the capacity to effectively retaliate against trading partners that are in violation of their WTO commitments. In light of this problem, Mexico has proposed that retaliation rights be made tradeable.' We offer a first formal analysis of the possibility that retaliation rights within the WTO system be allocated through auctions. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. A key feature of auction format is whether the country in violation of its WTO commitments is prevented from bidding to retire the right of retaliation: if so, then the possibility of auction failure' arises, in which no bids are made despite positive valuation by the bidders; if not, then auction failure is precluded, and indeed the right of retaliation is always retired. We also evaluate these different auction formats from normative (revenue, efficiency) standpoints.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9920.

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Date of creation: Aug 2003
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Handle: RePEc:nbr:nberwo:9920

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References

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  1. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  2. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  3. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-59, September.
  4. 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, January.
  5. Kyle Bagwell & Robert W. Staiger, 1997. "Reciprocity, Non-discrimination and Preferential Agreements in the Multilateral Trading System," NBER Working Papers 5932, National Bureau of Economic Research, Inc.
  6. Kyle Bagwell & Robert W. Staiger, 1988. "A Theory of Managed Trade," NBER Working Papers 2756, National Bureau of Economic Research, Inc.
  7. Bagwell, Kyle & Staiger, Robert, 1994. "Multilateral Tariff Cooperation During the Formation of Customs Unions," CEPR Discussion Papers 962, C.E.P.R. Discussion Papers.
  8. 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.
  9. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  10. Nuno Limão, 2002. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," International Trade 0206002, EconWPA, revised 28 Jul 2002.
  11. Haile, Philip A., 2000. "Partial Pooling at the Reserve Price in Auctions with Resale Opportunities," Games and Economic Behavior, Elsevier, vol. 33(2), pages 231-248, November.
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Cited by:
  1. Chad P. Bown & Meredith Crowley, 2004. "Policy externalities: how U.S. antidumping affects Japanese exports to the EU," Working Paper Series WP-04-12, Federal Reserve Bank of Chicago.
  2. Joseph E. Stiglitz & Andrew Charlton, 2005. "Un cycle de négociations commerciales pour le développement ?," Revue d’économie du développement, De Boeck Université, vol. 19(4), pages 17-54.
  3. Bagwell, Kyle & Mavroidis, Petros C. & Staiger, Robert W., 2004. "The case for tradable remedies in WTO dispute settlement," Policy Research Working Paper Series 3314, The World Bank.
  4. Horn, Henrik & Mavroidis, Petros C, 2006. "A Survey of the Literature on the WTO Dispute Settlement System," CEPR Discussion Papers 6020, C.E.P.R. Discussion Papers.
  5. Jehiel, Philippe & Moldovanu, Benny, 2006. "Allocative and Informational Externalities in Auctions and Related Mechanisms," CEPR Discussion Papers 5558, C.E.P.R. Discussion Papers.
  6. Limão, Nuno & Saggi, Kamal, 2006. "Tariff Retaliation versus Financial Compensation in the Enforcement of International Trade Agreements," CEPR Discussion Papers 5560, C.E.P.R. Discussion Papers.
  7. Bagwell, Kyle & Mavroidis, Petros C. & Staiger, Robert W., 2007. "Auctioning countermeasures in the WTO," Journal of International Economics, Elsevier, vol. 73(2), pages 309-332, November.
  8. Fritz Breuss, 2004. "WTO Dispute Settlement: An Economic Analysis of four EU-US Mini Trade Wars," WIFO Working Papers 231, WIFO.
  9. Wilhelm Kohler, 2004. "The WTO Dispute Settlement Mechanism: Battlefield or Cooperation? A Commentary on Fritz Breuss," Journal of Industry, Competition and Trade, Springer, vol. 4(4), pages 317-336, December.
  10. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA.
  11. Ben Zissimos, 2006. "The Structure and Performance of the World Market in a Cobb-Douglas Example," Vanderbilt University Department of Economics Working Papers 0623, Vanderbilt University Department of Economics.

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