IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?

  • Barbara Dluhosch
  • Daniel Horgos

In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of non- cooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: full text
Download Restriction: none

Paper provided by FIW in its series FIW Working Paper series with number 085.

in new window

Length: 45
Date of creation: May 2012
Date of revision:
Handle: RePEc:wsr:wpaper:y:2012:i:085
Contact details of provider:

Order Information: Postal: FIW Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Wilfred J. Ethier, 2002. "The Theory of Trade Policy and Trade Agreements: A Critique," PIER Working Paper Archive 06-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 05 Jun 2006.
  2. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  3. MARTIN, Alberto & VERGOTE, Wouter, 2007. "On the role of retaliation in trade agreements," CORE Discussion Papers 2007089, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Subramanian, Arvind & Wei, Shang-Jin, 2005. "The WTO Promotes Trade, Strongly But Unevenly," CEPR Discussion Papers 5122, C.E.P.R. Discussion Papers.
  5. Rhodes, Carolyn, 1989. "Reciprocity in trade: the utility of a bargaining strategy," International Organization, Cambridge University Press, vol. 43(02), pages 273-299, March.
  6. Christopher S. P. Magee & Stephen P. Magee, 2008. "The United States is a Small Country in World Trade," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 990-1004, November.
  7. Bhagwati, Jagdish, 1990. "Departures from Multilateralism: Regionalism and Aggressive Unilateralism," Economic Journal, Royal Economic Society, vol. 100(403), pages 1304-17, December.
  8. 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.
  9. Bown, Chad P. & Ruta, Michele, 2008. "The economics of permissible WTO retaliation," WTO Staff Working Papers ERSD-2008-04, World Trade Organization (WTO), Economic Research and Statistics Division.
  10. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages S179-204, January.
  11. Pelc, Krzysztof J., 2010. "Constraining Coercion? Legitimacy and Its Role in U.S. Trade Policy, 1975–2000," International Organization, Cambridge University Press, vol. 64(01), pages 65-96, January.
  12. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-89, August.
  13. Limão, Nuno & Saggi, Kamal, 2006. "Tariff Retaliation versus Financial Compensation in the Enforcement of International Trade Agreements," CEPR Discussion Papers 5560, C.E.P.R. Discussion Papers.
  14. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  15. Bowen, T. Renee, 2010. "Limits of the WTO as a Self-Enforcing Institution," Research Papers 2071, Stanford University, Graduate School of Business.
  16. Ludema, Rodney D & Mayda, Anna Maria, 2010. "Do terms-of-trade effects matter for trade agreements? Evidence from WTO countries," CEPR Discussion Papers 7695, C.E.P.R. Discussion Papers.
  17. Petros C. Mavroidis & Patrick A. Messerlin & Jasper M. Wauters, 2008. "The Law and Economics of Contingent Protection in the WTO," Books, Edward Elgar, number 12731, April.
  18. Keohane, Robert O., 1986. "Reciprocity in international relations," International Organization, Cambridge University Press, vol. 40(01), pages 1-27, December.
  19. Kyle Bagwell & Robert W. Staiger, 2010. "The World Trade Organization: Theory and Practice," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 223-256, 09.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wsr:wpaper:y:2012:i:085. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.