Working Paper: NBER ID: w9920
Authors: Kyle Bagwell; Petros C. Mavroidis; Robert W. Staiger
Abstract: A prominent problem with the WTO dispute settlement procedures is the practical difficulty faced by small and developing countries in finding the capacity to effectively retaliate against trading partners that are in violation of their WTO commitments. In light of this problem, Mexico has proposed that retaliation rights be made tradeable.' We offer a first formal analysis of the possibility that retaliation rights within the WTO system be allocated through auctions. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. A key feature of auction format is whether the country in violation of its WTO commitments is prevented from bidding to retire the right of retaliation: if so, then the possibility of auction failure' arises, in which no bids are made despite positive valuation by the bidders; if not, then auction failure is precluded, and indeed the right of retaliation is always retired. We also evaluate these different auction formats from normative (revenue, efficiency) standpoints.
Keywords: No keywords provided
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auction format (home country bidding restrictions) (D44) | auction success (or failure) (D44) |
| home country bidding permission (D44) | ability to retire the right of retaliation (D74) |
| auction structure (D44) | bidder motivations (D44) |
| auction design (D44) | economic outcomes (F61) |