TRADE DISPUTES AND SETTLEMENT

Giovanni Maggi and Robert Staiger

International Economic Review, 2018, vol. 59, issue 1, 19-50

Abstract: We develop a model of trade agreements with renegotiation and imperfectly verifiable information. In equilibrium, trade disputes can occur and can be resolved in a variety of ways: Governments may settle “early†or trigger a court ruling, and in the latter case, they may implement the ruling or reach a post†ruling settlement. The model yields predictions on how the dispute outcome depends on the contracting environment and how it correlates with the optimal contract form. We find support for a key prediction of our model using data on the outcomes of actual trade disputes in the General Agreement on Tariffs and Trade/World Trade Organization.

Date: 2018
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