The Optimal Design of International Trade Institutions: Uncertainty and Escape

33 Pages Posted: 22 Jul 2001  

B. Peter Rosendorff

New York University (NYU) - Wilf Family Department of Politics

Helen V. Milner

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: January 2001

Abstract

International institutions that include an escape clause generate more durable and stable cooperative international regimes, and are easier to achieve ex ante. The escape clause is endogenous in a model of repeated trade-barrier setting in the presence of symmetric, two-sided, political uncertainty. They permit, along the equilibrium path, countries to temporarily deviate from their obligations in periods of excessive, unexpected political pressure at some prenegotiated cost. The architects of international agreements optimally choose a cost so that escape clauses are neither too cheap to use (encouraging frequent recourse, effectively reducing the benefits of cooperation) nor too expensive (such that they are rarely used leading to an increased chance of systemic breakdown). The international institution's crucial role is one of an information provider (verifying that the self-enforcing penalty has been paid (voluntarily)), rather than one of enforcer coercing payment. Escape clauses also make agreements easier to reach initially. Their flexibility allows states to be reassured that the division of the long-term gains from the agreement is not immutable.

Suggested Citation

Rosendorff, Bryan Peter and Milner, Helen, The Optimal Design of International Trade Institutions: Uncertainty and Escape (January 2001). USC CLEO Research Paper No. C01-9. Available at SSRN: https://ssrn.com/abstract=276123 or http://dx.doi.org/10.2139/ssrn.276123

Bryan Peter Rosendorff (Contact Author)

New York University (NYU) - Wilf Family Department of Politics ( email )

19 West 4th St.
2nd Floor
New York, NY 10012
United States

Helen Milner

affiliation not provided to SSRN

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