Imperfect Monitoring in International Trade Cooperation

Abstract

Under what conditions do states maintain trade cooperation? We explore this question using models of imperfect monitoring. Most formal models of international cooperation rely on signaling games, in which actors' actions are perfectly observable. Here we examine conditions for cooperation when the actions of states are not perfectly observable. We argue that our modeling strategy is a more accurate reflection of the problems that arise in international trade. The paper examines variants of a repeated prisoners' dilemma with imperfect monitoring and offers a novel theoretical finding – free trade will be difficult to sustain when one trading partner is fully committed to free trade.

Keywords: International Trade, Cooperation, Repeated Games, Imperfect Monitoring, United States, China

JEL Classification: F10