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A Mechanism Design of Dispute Resolution Systems in a Regional-Free Trade Agreement

Author

Listed:
  • Miljkovic Dragan

    (Department of Agribusiness & Applied Economics, North Dakota State University, 614A Barry Hall NDSU Dept. 7610, Fargo, ND 58108–6050, USA)

  • Gomez Miguel

    (Dyson School of Applied Economics and Management, Cornell University, Ithaca, NY, USA)

Abstract

We examine the problem of mechanism design of how individual produce firms within NAFTA make their decisions to belong to the Dispute Resolution Corporation (DRC) when facing a set of criteria to which they previously agreed upon. We design a dominant strategy (the truth-telling) mechanism where both Pareto optimality and optimization of DRC’s welfare are achieved. If there are pivotal firms within the DRC, necessary assumptions made for such a mechanism to work cannot be all satisfied. Next, we compare the assumptions necessary for the mechanism to function and the current system for dispute resolution of the DRC. Casual empiricism and to-date existence of the DRC suggest the existence of pivotal firms.

Suggested Citation

  • Miljkovic Dragan & Gomez Miguel, 2013. "A Mechanism Design of Dispute Resolution Systems in a Regional-Free Trade Agreement," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 113-128, October.
    • Handle: RePEc:bpj:bjafio:v:11:y:2013:i:1:p:16:n:8
    DOI: 10.1515/jafio-2013-0006
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