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Optimal International Agreement and Restriction on Domestic Efficiency

Gea M. Lee ()
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Gea M. Lee: School of Economics, Singapore Management University

No 12-2016, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: The WTO's strict treatment of domestic subsidies has not been well received in the existing literature. An essential reason is that the consequent restriction on domestic efficiency is hardly compatible with the existing theory of government intervention under which the primary objective of using domestic subsidies, domestic efficiency, is not sacrificed for another objective. We develop a trade-agreement model in which the magnitude of a legitimate domestic subsidy with which to address a production externality is private information. We find that an optimal agreement substantially restricts domestic efficiency for the international objective of expanding market access.

Keywords: Optimal Agreement; Restriction on Domestic Efficiency; Market-Access Preservation Rule; GATT/WTO Subsidy Rules (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-01-01
New Economics Papers: this item is included in nep-int and nep-sea
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