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Breach, Remedies and Dispute Settlement in Trade Agreements

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Abstract

We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of "property rights" or "liability rules." We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus "fighting it out."

Suggested Citation

  • Giovanni Maggi & Robert W. Staiger, 2009. "Breach, Remedies and Dispute Settlement in Trade Agreements," Cowles Foundation Discussion Papers 1735, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1735
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    References listed on IDEAS

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    1. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
    2. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
    3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    4. Horn, Henrik & Mavroidis, Petros C., 2008. "The WTO Dispute Settlement System 1995–2006: Some Descriptive Statistics," Working Paper Series 740, Research Institute of Industrial Economics.
    5. Martin, Alberto & Vergote, Wouter, 2008. "On the role of retaliation in trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 61-77, September.
    6. Susan Athey, 2002. "Monotone Comparative Statics under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 187-223.
    7. Robert Z. Lawrence, 2003. "Crimes and Punishments?: Retaliation under the WTO," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 372.
    8. Wilfred J. Ethier, "undated". "Punishment and Dispute Settlement in Trade Agreements," EPRU Working Paper Series 01-14, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    9. Beshkar, Mostafa, 2010. "Optimal remedies in international trade agreements," European Economic Review, Elsevier, vol. 54(3), pages 455-466, April.
    10. Giovanni Maggi & Robert W. Staiger, 2008. "On the Role and Design of Dispute Settlement Procedures in International Trade Agreements," NBER Working Papers 14067, National Bureau of Economic Research, Inc.
    11. Park, Jee-Hyeong, 2009. "Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO," CCES Discussion Paper Series 19, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    12. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages 179-204, January.
    13. Jee-Hyeong Park, 2009. "Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO," Global COE Hi-Stat Discussion Paper Series gd09-063, Institute of Economic Research, Hitotsubashi University.
    14. Beshkar, Mostafa, 2010. "Trade skirmishes safeguards: A theory of the WTO dispute settlement process," Journal of International Economics, Elsevier, vol. 82(1), pages 35-48, September.
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    More about this item

    Keywords

    International trade agreements; Breach remedies; Dispute settlementLength: 52 pages;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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