The Case for Auctioning Countermeasures in the WTO

Kyle Bagwell, Petros C. Mavroidis and Robert W. Staiger ()

No 9920, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A prominent problem with the WTO dispute settlement procedures is the practical difficulty faced by small and developing countries in finding the capacity to effectively retaliate against trading partners that are in violation of their WTO commitments. In light of this problem, Mexico has proposed that retaliation rights be made tradeable.' We offer a first formal analysis of the possibility that retaliation rights within the WTO system be allocated through auctions. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. A key feature of auction format is whether the country in violation of its WTO commitments is prevented from bidding to retire the right of retaliation: if so, then the possibility of auction failure' arises, in which no bids are made despite positive valuation by the bidders; if not, then auction failure is precluded, and indeed the right of retaliation is always retired. We also evaluate these different auction formats from normative (revenue, efficiency) standpoints.

JEL-codes: F1 (search for similar items in EconPapers)
Date: 2003-08
Note: ITI
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Related works:
Working Paper: The case for auctioning countermeasures in the WTO (2003)
Working Paper: The case for auctioning countermeasures in the WTO (2004)
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