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Sustaining Free Trade with Imperfect Private Information about Non-Tariff Barriers

  • Jee-Hyeong Park

    (Wayne State University)

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    This paper examines the issue of sustaining free trade when countries receive imperfect private information about each other's non-tariff barriers. Because the countries can misrepresent their private briefs about other countries' protection levels, the punishment scheme to deter deviations from free trade should provide right incentives for the countries to elicit the true private information. This incentive constraint (ICP) restricts the length of punishment phases. If the private information is almost perfect, the ICP is not a binding constraint for symmetric countries in sustaining symmetric cooperation. However, the ICP does become a binding constraint if there exists a large enough asymmetry in the countries' incentives to deviate from free trade, or if there exists a large enough asymmetry in clarity of the countries' trade policies. Then, a mechanism that publicizes the information about non-tariff barriers, like Trade Policy Review Mechanism (TPRM) of WTO, can play a positive role in restoring cooperative behaviors by relaxing the ICP.

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    File URL: http://fmwww.bc.edu/RePEc/es2000/1036.pdf
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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1036.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:1036
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    1. repec:att:wimass:9602 is not listed on IDEAS
    2. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
    3. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 4, pages 45-51 World Scientific Publishing Co. Pte. Ltd..
    4. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May.
    5. Kandori, Michihiro, 1992. "The Use of Information in Repeated Games with Imperfect Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 581-93, July.
    6. Ludema, Rodney D., 2001. "Optimal international trade agreements and dispute settlement procedures," European Journal of Political Economy, Elsevier, vol. 17(2), pages 355-376, June.
    7. Kyle Bagwell & Robert W. Staiger, 1996. "Reciprocal Trade Liberalization," NBER Working Papers 5488, National Bureau of Economic Research, Inc.
    8. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
    9. Robert W. Staiger, 1994. "International Rules and Institutions for Trade Policy," NBER Working Papers 4962, National Bureau of Economic Research, Inc.
    10. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    11. Fudenberg, D. & Levine, D.K., 1989. "An Approximative Folk Theorem With Imperfect Private Information," Working papers 525, Massachusetts Institute of Technology (MIT), Department of Economics.
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