Policy Linkage and Uncertainty in International Agreements

Josh Ederington

Economic Inquiry, 2003, vol. 41, issue 2, 305-317

Abstract: This article uses noncooperative game theory to analyze the potential benefits of linking trade agreements to agreements covering domestic policies in a world of uncertainty. I show that nonlinkage is more desirable if there is a positive probability that a country will erroneously believe that its trading partner is cheating on the agreement (triggering an unnecessary punishment phase). In contrast, linkage is more desirable if there is a positive probability that cheating will go unnoticed. Copyright 2003, Oxford University Press.

Date: 2003
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