Working Paper: CEPR ID: DP6037
Authors: Henrik Horn; Giovanni Maggi; Robert W. Staiger
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.
Keywords: endogenously incomplete contracts; GATT; trade agreement; WTO
JEL Codes: D86; F13; K33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| contracting costs (M55) | degree of completeness of trade agreements (F13) |
| contracting costs (M55) | optimal agreement rigidity (C78) |
| contracting costs (M55) | optimal agreement discretion (C78) |
| optimal agreement rigidity and discretion (D70) | no agreement (Y70) |
| contracting costs (M55) | domestic policy discretion in agreements (F13) |
| contracting costs (M55) | regulation of domestic subsidies by WTO (F13) |
| GATT to WTO evolution (F13) | contracting costs (M55) |