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Optimal International Agreement and Restriction on Domestic Efficiency

Author

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  • Lee, Gea M.

    (School of Economics, Singapore Management University)

Abstract

The WTO's strict treatment of domestic subsidies has not been well received in the existing literature. An essential reason is that the consequent restriction on domestic efficiency is hardly compatible with the existing theory of government intervention under which the primary objective of using domestic subsidies, domestic efficiency, is not sacrificed for another objective. We develop a trade-agreement model in which the magnitude of a legitimate domestic subsidy with which to address a production externality is private information. We find that an optimal agreement substantially restricts domestic efficiency for the international objective of expanding market access.

Suggested Citation

  • Lee, Gea M., 2016. "Optimal International Agreement and Restriction on Domestic Efficiency," Economics and Statistics Working Papers 12-2016, Singapore Management University, School of Economics.
    • Handle: RePEc:ris:smuesw:2016_012
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    Cited by:

    1. Pramila Crivelli & Luca Rubini, 2019. "“Flying High in a Plane” Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft (WT/DS316/AB/RW)," RSCAS Working Papers 2019/78, European University Institute.
    2. Sang-Kee Kim & Young-Han Kim, 2020. "Welfare implications of upstream subsidy in the presence of countervailing duties under limited verifiability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 643-663, June.

    More about this item

    Keywords

    Optimal Agreement; Restriction on Domestic Efficiency; Market-Access Preservation Rule; GATT/WTO Subsidy Rules;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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