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Enforcing International Trade Agreements with Imperfect Private Monitoring

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  • Jee-Hyeong Park

Abstract

To analyse the role that the World Trade Organization (WTO) plays in enforcing international trade agreements, this paper first explores what countries can achieve alone by characterizing optimal private trigger strategies (PTS) under which each country triggers a punishment phase by imposing an explicit tariff based on privately observed imperfect signals of the other country's concealed trade barriers. It identifies the condition under which countries can restrain the use of concealed barriers based on PTS and establishes that countries will not reduce the cooperative protection level to its minimum attainable level under the optimal PTS. This paper then considers third-party trigger strategies (TTS) under which the WTO allows each country to initiate a punishment phase based on the WTO's judgement about potential violations. By comparing the optimal PTS and optimal TTS, it demonstrates that the WTO facilitates a better cooperative equilibrium by changing the nature of punishment-triggering signals from private to public, which in turn enables countries to use a more efficient punishment, such as an asymmetric and a minimum punishment. Copyright 2011, Oxford University Press.

Suggested Citation

  • Jee-Hyeong Park, 2011. "Enforcing International Trade Agreements with Imperfect Private Monitoring," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 1102-1134.
  • Handle: RePEc:oup:restud:v:78:y:2011:i:3:p:1102-1134
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    File URL: http://hdl.handle.net/10.1093/restud/rdq036
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    Cited by:

    1. Kuenzel, David J., 2017. "WTO dispute determinants," European Economic Review, Elsevier, vol. 91(C), pages 157-179.
    2. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    3. repec:eee:inecon:v:108:y:2017:i:c:p:226-242 is not listed on IDEAS
    4. Bown, Chad P. & Hillman, Jennifer A., 2016. "Bird Flu, the OIE, and National Regulation: The WTO's India–Agricultural Products Dispute," World Trade Review, Cambridge University Press, vol. 15(02), pages 235-257, April.
    5. Lee, Gea M., 2016. "Optimal international agreement and restriction on domestic efficiency," Journal of International Economics, Elsevier, vol. 99(C), pages 138-155.
    6. Chad Bown & Kara Reynolds, 2015. "Trade flows and trade disputes," The Review of International Organizations, Springer, vol. 10(2), pages 145-177, June.
    7. Mostafa Beshkar & Jee-Hyeong Park, 2017. "Dispute Settlement with Second-Order Uncertainty: The Case of International Trade Disputes," Caepr Working Papers 2017-010 Classification-K, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    8. Vincent Anesi & Giovanni Facchini, "undated". "Coercive Trade Policy," Development Working Papers 376, Centro Studi Luca d'Agliano, University of Milano.
    9. Gene M. Grossman, 2016. "The Purpose of Trade Agreements," NBER Working Papers 22070, National Bureau of Economic Research, Inc.
    10. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    11. Giovanni Maggi & Robert W. Staiger, 2017. "Learning by Ruling and Trade Disputes," NBER Working Papers 23774, National Bureau of Economic Research, Inc.
    12. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, vol. 88(1), pages 47-61.
    13. Kara M. Reynolds & Chad P. Bown, 2014. "Trade Flows and Trade Disputes," Working Papers 2014-05, American University, Department of Economics.
    14. Yuichi Yamamoto, 2012. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 12-044, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    15. repec:inu:caeprp:2014004 is not listed on IDEAS
    16. Bown,Chad P. & Reynolds,Kara Marie & Bown,Chad P. & Reynolds,Kara Marie, 2015. "Trade agreements and enforcement : evidence from WTO dispute settlement," Policy Research Working Paper Series 7242, The World Bank.
    17. Yuichi Yamamoto, 2013. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 13-038, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    18. Mostafa Beshkar, 2014. "Arbitration and Renegotiation in Trade Agreements," Caepr Working Papers 2014-004, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    19. Ederington,Josh & Ruta,Michele, 2016. "Non-tariff measures and the world trading system," Policy Research Working Paper Series 7661, The World Bank.

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