The Value of Multilateral Trade Liberalization and the Need for Third-Party Sanction

17 Pages Posted: 4 Feb 2002

See all articles by Kong-Pin Chen

Kong-Pin Chen

Institute of Economics, Academia Sinica; National Taiwan University - Department of Economics

Cheng-Zhong Qin

University of California, Santa Barbara (UCSB) - Department of Economics

Larry D. Qiu

The University of Hong Kong - Faculty of Business and Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: January 2002

Abstract

Trade policies such as tariffs are often featured by the prisoners' dilemma. One country's trade liberalization is vulnerable to the opportunism of another country. This problem is more serious in cases where a country behaving opportunistically can only be punished by the victims. In a trade model with three countries, we show that "circular concessions" are the only way to have any Pareto-improving trade liberalization. The circular nature of the concessions implies that if punishment can be carried only by the victim of opportunistic behavior, multilateral trade liberalization cannot be sustained. Our results have implications for the rule design in multilateral systems such as the WTO.

Keywords: multilateral trade liberalization, WTO

JEL Classification: F12, F13

Suggested Citation

Chen, Kong-Pin and Qin, Cheng-Zhong and Qiu, Larry Dongxiao, The Value of Multilateral Trade Liberalization and the Need for Third-Party Sanction (January 2002). Available at SSRN: https://ssrn.com/abstract=298603 or http://dx.doi.org/10.2139/ssrn.298603

Kong-Pin Chen (Contact Author)

Institute of Economics, Academia Sinica ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

HOME PAGE: http://idv.sinica.edu.tw/kongpin

National Taiwan University - Department of Economics

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

Cheng-Zhong Qin

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

Larry Dongxiao Qiu

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

School of Economics and Finance
University of Hong Kong
Pokfulam
Hong Kong

HOME PAGE: http://www.bm.ust.hk/~larryqiu/

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