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Enforcing International Trade Agreements with Imperfect Private Monitoring

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  • Jee-Hyeong Park
Abstract
To analyse the role that the World Trade Organization (WTO) plays in enforcing international trade agreements, this paper first explores what countries can achieve alone by characterizing optimal private trigger strategies (PTS) under which each country triggers a punishment phase by imposing an explicit tariff based on privately observed imperfect signals of the other country's concealed trade barriers. It identifies the condition under which countries can restrain the use of concealed barriers based on PTS and establishes that countries will not reduce the cooperative protection level to its minimum attainable level under the optimal PTS. This paper then considers third-party trigger strategies (TTS) under which the WTO allows each country to initiate a punishment phase based on the WTO's judgement about potential violations. By comparing the optimal PTS and optimal TTS, it demonstrates that the WTO facilitates a better cooperative equilibrium by changing the nature of punishment-triggering signals from private to public, which in turn enables countries to use a more efficient punishment, such as an asymmetric and a minimum punishment. Copyright 2011, Oxford University Press.

Suggested Citation

  • Jee-Hyeong Park, 2011. "Enforcing International Trade Agreements with Imperfect Private Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 1102-1134.
    • Handle: RePEc:oup:restud:v:78:y:2011:i:3:p:1102-1134
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    File URL: http://hdl.handle.net/10.1093/restud/rdq036
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    Citations

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    Cited by:

    1. Mostafa Beshkar & Jee-Hyeong Park, 2017. "Dispute Settlement with Second-Order Uncertainty: The Case of International Trade Disputes," CAEPR Working Papers 2017-010, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    2. Chisik, Richard, 2012. "Trade disputes, quality choice, and economic integration," Journal of International Economics, Elsevier, vol. 88(1), pages 47-61.
    3. Andrea Moro & Peter Norman, 2019. "Endogenous Comparative Advantage," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1088-1124, July.
    4. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    5. Grossman, Gene, 2016. "The Purpose of Trade Agreements," CEPR Discussion Papers 11151, C.E.P.R. Discussion Papers.
    6. Vincent Anesi & Giovanni Facchini, 2019. "Coercive Trade Policy," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 225-256, August.
    7. Maggi, Giovanni & Staiger, Robert W., 2020. "Learning by ruling and trade disputes," Journal of International Economics, Elsevier, vol. 126(C).
    8. Bown, Chad P. & Hillman, Jennifer A., 2016. "Bird Flu, the OIE, and National Regulation: The WTO's India–Agricultural Products Dispute," World Trade Review, Cambridge University Press, vol. 15(2), pages 235-257, April.
    9. Chad Bown & Kara Reynolds, 2015. "Trade flows and trade disputes," The Review of International Organizations, Springer, vol. 10(2), pages 145-177, June.
    10. Staiger, Robert & Bagwell, Kyle & Bown, Chad, 2015. "Is the WTO Passé?," CEPR Discussion Papers 10672, C.E.P.R. Discussion Papers.
    11. Mostafa Beshkar & Jee‐Hyeong Park, 2021. "Dispute Settlement With Second‐Order Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1433-1452, November.
    12. Lee, Gea M., 2016. "Optimal international agreement and restriction on domestic efficiency," Journal of International Economics, Elsevier, vol. 99(C), pages 138-155.
    13. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    14. Kara M. Reynolds & Chad P. Bown, 2014. "Trade Flows and Trade Disputes," Working Papers 2014-05, American University, Department of Economics.
    15. Chad P. Bown & Kara M. Reynolds, 2017. "Trade Agreements and Enforcement: Evidence from WTO Dispute Settlement," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 64-100, November.
    16. Gea Myoung Lee, 2011. "Optimal International Agreement and Treatment of Domestic Subsidy," Working Papers 01-2011, Singapore Management University, School of Economics.
    17. Frank Stähler, 2023. "An optimal investor-state dispute settlement mechanism," Journal of Economics, Springer, vol. 138(1), pages 1-16, January.
    18. Kuenzel, David J., 2017. "WTO dispute determinants," European Economic Review, Elsevier, vol. 91(C), pages 157-179.
    19. Yuichi Yamamoto, 2012. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 12-044, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    20. Mostafa Beshkar, 2016. "Arbitration and Renegotiation in Trade Agreements," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(3), pages 586-619.
    21. Mostafa Beshkar, 2014. "Arbitration and Renegotiation in Trade Agreements," Caepr Working Papers 2014-004, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    22. Ederington,Josh & Ruta,Michele, 2016. "Non-tariff measures and the world trading system," Policy Research Working Paper Series 7661, The World Bank.
    23. Buzard, Kristy, 2017. "Self-enforcing trade agreements and lobbying," Journal of International Economics, Elsevier, vol. 108(C), pages 226-242.
    24. Yuichi Yamamoto, 2013. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 13-038, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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