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Trade Agreements, Political Economy and Endogenously Incomplete Contracts

Na Li and Alan Ker ()

No 116850, Working Papers from Canadian Agricultural Trade Policy Research Network

Abstract: We develop a political economy model of trade agreements following along the line of Grossman and Helpman (1995a) yet incorporating contracting costs, uncertainty and multiple policy instruments. We show that rent-seeking efforts do not affect tariff rates as they are offset by the substitution effect of domestic production subsidies. Similar to Horn et al (2010), we find the coexistence of uncertainty and contracting costs make optimal trade agreements incomplete contracts. Our model helps explain differential treatment on subsidies, countervailing duties, and the national treatment principle - all key provisions of the current WTO agreement.

Keywords: Agricultural and Food Policy; International Relations/Trade; Political Economy; Public Economics (search for similar items in EconPapers)
Pages: 20
Date: 2011-06
New Economics Papers: this item is included in nep-pol
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DOI: 10.22004/ag.econ.116850

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