Recurrent Trade Agreements and the Value of External Enforcement

Mikhail Klimenko, Garey Ramey and Joel Watson

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

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 any coercive power. The occurrence of costly trade disputes, and the feasibility of mechanisms such as escape clauses, depend on the adaptability of enforcement institutions in their use of information.

Keywords: International trade; WTO (search for similar items in EconPapers)
Date: 2001-01-01
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Citations: View citations in EconPapers (1)

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Journal Article: Recurrent trade agreements and the value of external enforcement (2008)
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