Trade Agreements as Endogenously Incomplete Contracts
51 Pages Posted: 13 Dec 2006 Last revised: 30 Oct 2022
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Trade Agreements as Endogenously Incomplete Contracts
Trade Agreements as Endogenously Incomplete Contracts
Date Written: December 2006
Abstract
We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. In spite of its simplicity, the model yields rich predictions on the structure of the optimal trade agreement and how this depends on the fundamentals of the contracting environment. We argue that taking contracting costs explicitly into account can help explain a number of key features of real trade agreements.
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