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Duration and Term Structure of Trade Agreements

Author

Listed:
  • Sergei Guriev

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Mikhail Klimenko

    (Unknown)

Abstract

We use a dynamic incomplete contracting model to show that time structure of trade agreements is related to the characteristics of trade-facilitating investments. If these investments are specialised to trade in a particular homogeneous good, fixed-term agreements are more likely. Fixed-term agreements provide incentives for the initial investment but leave the parties the flexibility to revisit the need for future investment. If the agreement covers trade in multiple sectors or differentiated goods or services, inter-sectoral spillovers reduce risks of overinvestment. In this case, the parties are more likely to choose an evergreen agreement (with an advance termination notice).

Suggested Citation

  • Sergei Guriev & Mikhail Klimenko, 2015. "Duration and Term Structure of Trade Agreements," Sciences Po Economics Publications (main) hal-03392962, HAL.
    • Handle: RePEc:hal:spmain:hal-03392962
    DOI: 10.1111/ecoj.12258
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    Cited by:

    1. is not listed on IDEAS
    2. Panu Poutvaara & Tuomas Takalo & Andreas Wagener, 2017. "The Optimal Duration of Contracts," CESifo Working Paper Series 6808, CESifo.
    3. Xinyu Hua & Kathryn E. Spier, 2023. "Settling Lawsuits With Pirates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 543-575, May.
    4. Bård Harstad, 2022. "Trade, Trees, and Contingent Trade Agreements," CESifo Working Paper Series 9596, CESifo.
    5. Hartigan, James C., 2018. "Punching out of one's weight class? Cross agreement retaliation in the WTO," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 274-288.

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