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The Case for Auctioning Countermeasures in the WTO

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Author Info
Kyle Bagwell
Petros C. Mavroidis
Robert W. Staiger

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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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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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F1 - International Economics - - Trade

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. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June. [Downloadable!] (restricted)
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  2. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February. [Downloadable!] (restricted)
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  3. 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, December.
  4. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December. [Downloadable!] (restricted)
  5. Petros C. Mavroidis & Kyle Bagwell & Robert W. Staiger, 2004. "The case for tradable remedies in WTO dispute settlement," Discussion Papers 0405-05, Columbia University, Department of Economics. [Downloadable!]
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  6. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September. [Downloadable!]
  7. Limao, Nuno, 2005. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," Journal of International Economics, Elsevier, vol. 67(1), pages 175-199, September. [Downloadable!] (restricted)
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  8. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June. [Downloadable!] (restricted)
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  9. Chad P. Bown, 2004. "On the Economic Success of GATT/WTO Dispute Settlement," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 811-823, 05. [Downloadable!] (restricted)
  10. 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. [Downloadable!]
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  11. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-95, September. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
  13. Kyle Bagwell & Robert W. Staiger, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March. [Downloadable!] (restricted)
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  14. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
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  15. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring. [Downloadable!] (restricted)
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  16. Chad P. Bown, 2004. "Developing Countries as Plaintiffs and Defendants in GATT/WTO Trade Disputes," The World Economy, Blackwell Publishing, vol. 27(1), pages 59-80, 01. [Downloadable!] (restricted)
  17. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May. [Downloadable!] (restricted)
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  18. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-59, September.
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  19. 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)
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. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
    Other versions:
  3. Ben Zissimos, 2006. "The Structure and Performance of the World Market in a Cobb-Douglas Example," Working Papers 0623, Department of Economics, Vanderbilt University. [Downloadable!]
  4. Petros C. Mavroidis & Kyle Bagwell & Robert W. Staiger, 2004. "The case for tradable remedies in WTO dispute settlement," Discussion Papers 0405-05, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  5. Limao, Nuno & Saggi, Kamal, 2006. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," Policy Research Working Paper Series 3873, The World Bank. [Downloadable!]
    Other versions:
  6. 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. [Downloadable!]
    Other versions:
  7. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Discussion Papers 142, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  8. 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. [Downloadable!]
  9. Fritz Breuss, 2004. "WTO Dispute Settlement: An Economic Analysis of four EU-US Mini Trade Wars," WIFO Working Papers 231, WIFO. [Downloadable!]
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