Recurrent Trade Agreements and the Value of External Enforcement

UCSD Economics Discussion Paper 2001-01

Posted: 14 May 2001

See all articles by Joel Watson

Joel Watson

University of California, San Diego (UCSD) - Department of Economics

Mikhail M. Klimenko

Georgia Institute of Technology - School of Economics

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2001

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: Institutions, Recurrent Negotiation, Dispute Resolution, Cooperation, WTO

JEL Classification: F13, K33, C72

Suggested Citation

Watson, Joel and Klimenko, Mikhail M. and Ramey, Garey, Recurrent Trade Agreements and the Value of External Enforcement (January 2001). UCSD Economics Discussion Paper 2001-01, Available at SSRN: https://ssrn.com/abstract=266513

Joel Watson (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Mikhail M. Klimenko

Georgia Institute of Technology - School of Economics ( email )

781 Marietta Street, NW
Atlanta, GA 30332
United States

HOME PAGE: http://www.econ.gatech.edu/docs/klimenko_vita0904.pdf

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-5721 (Phone)
858-534-7040 (Fax)

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