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Recurrent Trade Agreements and the Value of External Enforcement

  • Klimenko, Mikhail
  • Ramey, Garey
  • Watson, Joel

This paper presents a theory of dynamic trade agreements in which external institutions, such as the WTO, play a central role in supporting credible enforcement. In our model, countries engage in ongoing negotiations, and as a consequence cooperative agreements become unsustainable in the absence of external enforcement institutions. By using mechanisms such as delays in dispute resolution and direct penalties, enforcement institutions can restore incentives for cooperation, despite the lack of any coercive power. The occurrence of costly trade disputes, and the feasibility of mechanisms such as escape clauses, depend on the adaptability of enforcement institutions in their use of information.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt9xm2x5w7.

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Date of creation: 01 Jan 2001
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Handle: RePEc:cdl:ucsdec:qt9xm2x5w7
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  1. Chad P. Bown, 2005. "Trade Remedies and World Trade Organization Dispute Settlement: Why Are So Few Challenged?," The Journal of Legal Studies, University of Chicago Press, vol. 34(2), pages 515-555, 06.
  2. Hungerford, Thomas L., 1991. "GATT: A cooperative equilibrium in a noncooperative trading regime?," Journal of International Economics, Elsevier, vol. 31(3-4), pages 357-369, November.
  3. 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.
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  5. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.
  6. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  7. Ludema, R.D., 1990. "Optimal International Trade Agreements And Dispute Settlement Procedures," UWO Department of Economics Working Papers 9101, University of Western Ontario, Department of Economics.
  8. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  9. Kyle Bagwell & Robert W. Staiger, 1989. "A Theory of Managed Trade," Discussion Papers 801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
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  12. repec:cdl:ucsdec:qt49p1c23g is not listed on IDEAS
  13. Garey Ramey & Joel Watson, 1999. "Contractual Intermediaries," Cowles Foundation Discussion Papers 1235, Cowles Foundation for Research in Economics, Yale University.
  14. Rosendorff, B. Peter & Milner, Helen V., 2001. "The Optimal Design of International Trade Institutions: Uncertainty and Escape," International Organization, Cambridge University Press, vol. 55(04), pages 829-857, September.
  15. Bagwell, Kyle & Staiger, Robert W, 1997. "Multilateral Tariff Cooperation during the Formation of Free Trade Areas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 291-319, May.
  16. Bagwell, Kyle & Staiger, Robert W., 2004. "Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO," Journal of International Economics, Elsevier, vol. 63(1), pages 1-29, May.
  17. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  18. Srinivasan, T.N., 2000. "WTO and The Developing Countries," Papers 548, Yale - Economic Growth Center.
  19. David G. Pearce, 1987. "Renegotiation-Proof Equilibria: Collective Rationality and Intertemporal Cooperation," Cowles Foundation Discussion Papers 855, Cowles Foundation for Research in Economics, Yale University.
  20. Bruce A. Blonigen & Thomas J. Prusa, 2001. "Antidumping," NBER Working Papers 8398, National Bureau of Economic Research, Inc.
  21. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  22. Abrea Dilip & Pearce David & Stacchetti Ennio, 1993. "Renegotiation and Symmetry in Repeated Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 217-240, August.
  23. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May.
  24. 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.
  25. Harry G. Johnson, 1953. "Optimum Tariffs and Retaliation," Review of Economic Studies, Oxford University Press, vol. 21(2), pages 142-153.
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