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(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?

Barbara Dluhosch and Daniel Horgos

No 85, FIW Working Paper series from FIW

Abstract: In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of non- cooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.

Keywords: Int. Political Economy; Trade Policy Conflicts; Tit-for-Tat; WTO Dispute Settlement (search for similar items in EconPapers)
JEL-codes: D74 F13 F51 (search for similar items in EconPapers)
Pages: 45
Date: 2012-05
New Economics Papers: this item is included in nep-int and nep-pol
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Journal Article: (When) Does Tit-for-tat Diplomacy in Trade Policy Pay Off? (2013) Downloads
Working Paper: (When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off? (2012) Downloads
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