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Does hidden information make trade liberalization more fragile?


  • Mathias Herzing


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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    References listed on IDEAS

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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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