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On the role of retaliation in trade agreements

This paper analyzes the role of retaliation in trade agreements. It shows that, in the presence of private information, retaliation can always be used to increase the welfare derived from such agreements by the participating governments. In particular, it is shown that retaliation is a necessary feature of any efficient equilibrium. We argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms-of-trade externalities. Within the current world trading system, though, in which transfers are seldom observed whereas export subsidies are prohibited, the use of the remaining trade instruments in a retaliatory fashion might be optimal. The model is used to interpret the retaliatory use of antidumping observed in the last decades, and the proliferation of these measures relative to other trade remedies.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/914.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 914.

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Date of creation: Jun 2005
Date of revision: Apr 2008
Handle: RePEc:upf:upfgen:914
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
  2. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-65, Autumn.
  3. Masaki Aoyagi, 2005. "Collusion through mediated communication in repeated games with imperfect private monitoring," Economic Theory, Springer, vol. 25(2), pages 455-475, 02.
  4. Bruce A. Blonigen & Chad P. Bown, 2001. "Antidumping and Retaliation Threats," NBER Working Papers 8576, National Bureau of Economic Research, Inc.
  5. Robert M. Feinberg & Kara M. Reynolds, 2006. "The Spread of Antidumping Regimes and the Role of Retaliation in Filings," Southern Economic Journal, Southern Economic Association, vol. 72(4), pages 877–890, April.
  6. Hopenhayn, Hugo A. & Skrzypacz, Andrzej, 2001. "Tacit Collusion in Repeated Auctions," Research Papers 1698r2, Stanford University, Graduate School of Business.
  7. Hylke Vandenbussche & Maurizio Zanardi, 2008. "What explains the proliferation of antidumping laws," ULB Institutional Repository 2013/9819, ULB -- Universite Libre de Bruxelles.
  8. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May.
  9. Susan Athey & Kyle Bagwell & Chris Sanchirico, 1998. "Collusion and Price Rigidity," Working papers 98-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  11. Thomas J. Prusa, 1999. "On the Spread and Impact of Antidumping," NBER Working Papers 7404, National Bureau of Economic Research, Inc.
  12. Susan Athey & David Miller, 2006. "Efficiency in Repeated Trade with Hidden Valuations," Levine's Bibliography 784828000000000256, UCLA Department of Economics.
  13. Bown, Chad P., 2005. "Trade remedies and World Trade Organization dispute settlement : Why are so few challenged?," Policy Research Working Paper Series 3540, The World Bank.
  14. Kyle Bagwell & Robert W. Staiger, 2005. "Enforcement, Private Political Pressure and the Gatt/Wto Escape Clause," Discussion Papers 0405-13, Columbia University, Department of Economics.
  15. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  16. Bown, Chad P., 2002. "Why are safeguards under the WTO so unpopular?," World Trade Review, Cambridge University Press, vol. 1(01), pages 47-62, March.
  17. Francois, Joseph & Niels, Gunnar, 2004. "Political Influence in a New Anti-Dumping Regime: Evidence from Mexico," CEPR Discussion Papers 4297, C.E.P.R. Discussion Papers.
  18. Park, Jee-Hyeong, 2000. "International trade agreements between countries of asymmetric size," Journal of International Economics, Elsevier, vol. 50(2), pages 473-495, April.
  19. Kyle Bagwell & Robert W. Staiger, 1997. "Reciprocity, Non-discrimination and Preferential Agreements in the Multilateral Trading System," NBER Working Papers 5932, National Bureau of Economic Research, Inc.
  20. Kyle Bagwell & Robert W. Staiger, 1988. "A Theory of Managed Trade," NBER Working Papers 2756, National Bureau of Economic Research, Inc.
  21. Thomas Prusa & Susan Skeath, 2002. "The economic and strategic motives for antidumping filings," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(3), pages 389-413, September.
  22. David A. Miller, 2012. "Robust Collusion with Private Information," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 778-811.
  23. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  24. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  25. Wendy L. Hansen & Thomas J. Prusa, 1996. "The Economics and Politics of Trade Policy: An Empirical Analysis of ITC Decision Making," Departmental Working Papers 199621, Rutgers University, Department of Economics.
  26. repec:aei:rpbook:24565 is not listed on IDEAS
  27. Moore, Michael O, 1992. "Rules or Politics? An Empirical Analysis of ITC Anti-dumping Decisions," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 449-66, July.
  28. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
  29. Thomas Klitgaard & Karen Schiele, 1998. "Free versus fair trade: the dumping issue," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 4(Aug).
  30. Robert C. Feenstra & Tracy R. Lewis, 1987. "Negotiated Trade Restrictions with Private Political Pressure," NBER Working Papers 2374, National Bureau of Economic Research, Inc.
  31. Hungerford, Thomas L., 1991. "GATT: A cooperative equilibrium in a noncooperative trading regime?," Journal of International Economics, Elsevier, vol. 31(3-4), pages 357-369, November.
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