Punishment and Dispute Settlement in Trade Agreements
This paper interprets dispute settlement procedures and punishments as responses to the fact that trade agreements are incomplete contracts. If no weight is given to the adjudication phase and if the degree of trade relatedness is known with certainty, the negotiated trade agreement will feature commensurate punishments, will induce violation of the dispute settlement ruling, and will deliver optimal liberalization and optimal unilateral trade-related action. With the adjudication phase of concern, the trade agreement will feature less liberalization, but still with a presumption of at least approximate commensurate punishment. The optimal trade agreement will likely induce abiding by the ruling when negotiators attach more importance to the adjudication phase, and violating it when they attach less.
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- Butler, M. & Hauser, H., 2000. "The WTO Dispute Settlement System : A First Assessment from an Economic Perspective," Discussion Paper 2000-21, Tilburg University, Center for Economic Research.
- Dan Kovenock & Marie Thursby, 1992.
"Gatt, Dispute Settlement And Cooperation,"
Economics and Politics,
Wiley Blackwell, vol. 4(2), pages 151-170, 07.
- Kyle Bagwell & Robert W. Staiger, 1997.
"An Economic Theory of GATT,"
NBER Working Papers
6049, National Bureau of Economic Research, Inc.
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