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The case for auctioning countermeasures in the WTO

  • Bagwell,K.
  • Mavroidis,P.C.
  • Staiger,R.W.

    (University of Wisconsin-Madison, Social Systems Research Institute)

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 Wisconsin Madison - Social Systems in its series Working papers with number 14.

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Date of creation: 2003
Date of revision:
Handle: RePEc:att:wimass:200314

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  1. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  2. Philippe Jehiel & Benny Moldovanu, 1998. "Efficient Design with Interdependent Valuations," Discussion Papers 1244, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation during the Formation of Customs Unions," NBER Working Papers 4543, National Bureau of Economic Research, Inc.
  4. 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.
  5. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  6. 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.
  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.
  8. Kyle Bagwell & Robert W. Staiger, 1988. "A Theory of Managed Trade," NBER Working Papers 2756, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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, June.
  11. 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.
  12. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  13. repec:adr:anecst:y:2008:i:90:p:09 is not listed on IDEAS
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