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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. Fudenberg, D. & Levine, D.K. & Maskin, E., 1989. "The Folk Theorem With Inperfect Public Information," Working papers 523, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. 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.
    3. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February.
    4. 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.
    5. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
    6. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
    7. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    8. Riezman, Raymond G., 1990. "Dynamic Tariffs with Asymmetric Information," Working Papers 720, California Institute of Technology, Division of the Humanities and Social Sciences.
    9. repec:att:wimass:9602 is not listed on IDEAS
    10. 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.
    11. Kyle Bagwell & Robert W. Staiger, 1996. "Reciprocal Trade Liberalization," Discussion Papers 1150, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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