Relative Performance in Bilateral Trade

Christian Ewerhart

No 327, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: Concerns for relative performance are integrated into a model of contractual renegotiation in bilateral trade. It is shown that concerns for relative performance do never impede efficient trade. Moreover, conditional on renegotiation to occur, concerns for relative performance tend to mitigate material rent expropriation. However, concerns for relative performance make the occurrence of renegotiation more likely, and may thereby lead to underinvestment even in very optimistic environments. The analysis suggests an explanation for the occurrence of the Druzhba pipeline conflict between Russia and Belarus in January 2007.

Keywords: Bilateral trade; incomplete contracting; relative performance; renegotiation; Druzhba pipeline. (search for similar items in EconPapers)
JEL-codes: D86 L95 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:327

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