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On the role of retaliation in trade agreements

  • MARTIN, Alberto
  • VERGOTE, Wouter

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

This paper analyzes the role of retaliation in trade agreements. It shows that, in the presence of private information, retaliation can always be used to increase the welfare derived from such agreements by the participating governments. In particular, it is shown that retaliation is a necessary feature of any efficient equilibrium. We argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms-of-trade externalities. Within the current world trading system, though, in which transfers are seldom observed whereas export subsidies are prohibited, the use of the remaining trade instruments in a retaliatory fashion might be optimal. The model is used to interpret the retaliatoy use of antidumping observed in the last decades, and the proliferation of these measures relative to other trade remedies.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007089.

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Date of creation: 01 Nov 2007
Date of revision:
Handle: RePEc:cor:louvco:2007089
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  1. Thomas J. Prusa, 1999. "On the Spread and Impact of Antidumping," NBER Working Papers 7404, National Bureau of Economic Research, Inc.
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  8. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
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  11. Kyle Bagwell & Robert W. Staiger, 1988. "A Theory of Managed Trade," NBER Working Papers 2756, National Bureau of Economic Research, Inc.
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  13. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May.
  14. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  15. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics.
  16. Joseph F. Francois & Gunnar Niels, 2004. "Political Influence in a New Antidumping Regime: Evidence from Mexico," Tinbergen Institute Discussion Papers 04-011/2, Tinbergen Institute.
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  21. Susan Athey & David Miller, 2006. "Efficiency in Repeated Trade with Hidden Valuations," Levine's Bibliography 784828000000000256, UCLA Department of Economics.
  22. Thomas J. Prusa & Susan Skeath, 2001. "The Economic and Strategic Motives for Antidumping Filings," NBER Working Papers 8424, National Bureau of Economic Research, Inc.
  23. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
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  27. Bagwell,K. & Staiger,R.W., 2004. "Enforcement, private political pressure and the GATT/WTO escape clause," Working papers 23, Wisconsin Madison - Social Systems.
  28. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  29. Robert M. Feinberg & Kara M. Reynolds, 2006. "The Spread of Antidumping Regimes and the Role of Retaliation in Filings," Southern Economic Journal, Southern Economic Association, vol. 72(4), pages 877–890, April.
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  31. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
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