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Does hidden information make trade liberalization more fragile?

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  • Mathias Herzing

Abstract

This paper focuses on the impact of hidden information on strategic interaction in the context of trade agreements. In the presence of informational asymmetry it is possible that a tradeoff between liberalization and sustainability of cooperation emerges. It is shown that it may be optimal to agree on a degree of liberalization associated with a strictly positive ex ante probability of deviation occurring. In that case, cooperation will break down in finite time, and the optimal degree of liberalization cannot be applied indefinitely.

Suggested Citation

  • Mathias Herzing, 2011. "Does hidden information make trade liberalization more fragile?," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 561-579, May.
  • Handle: RePEc:cje:issued:v:44:y:2011:i:2:p:561-579
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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