Forbearance in Optimal Multilateral Trade Agreements

Renee Bowen
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Renee Bowen: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: I present a theory of optimal multilateral trade agreements with public political shocks. I first show that "forbearance"-- where one country withholds retaliation when its trading partner receives a shock-- is a feature of an optimal agreement. This provides a rationale for countries not acting on retaliatory rights granted under GATT. Second I show that there is a limit to forbearance allowable in a self-enforcing agreement. This limit is increasing in the number of countries in the agreement, increasing in the common discount factor, and increasing in the size of the export sector.

JEL-codes: C73 D74 F10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-int
Date: 2011-11
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Persistent link: http://EconPapers.repec.org/RePEc:ecl:stabus:2085

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