Recurrent trade agreements and the value of external enforcement

Mikhail Klimenko, Garey Ramey and Joel Watson

Journal of International Economics, 2008, vol. 74, issue 2, 475-499

Abstract: This paper presents a theory of dynamic trade agreements in which external institutions, such as the WTO, play a central role in supporting credible enforcement. In our model, countries engage in ongoing negotiations, and, as a consequence, cooperative agreements become unsustainable in the absence of external enforcement institutions. By using mechanisms such as delays in dispute resolution and direct penalties, enforcement institutions can restore incentives for cooperation, despite the lack of coercive power. The occurrence of costly trade disputes, and the feasibility of mechanisms such as escape clauses, depend on the degree to which enforcement institutions can verify, and condition on, events that may lead to trade disputes.

Date: 2008
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Working Paper: Recurrent Trade Agreements and the Value of External Enforcement (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:74:y:2008:i:2:p:475-499

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