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Optimal international agreement and restriction on domestic efficiency

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  • Lee, Gea M.

Abstract

The WTO's strict treatment of domestic subsidies has not been well received in the existing literature. An essential reason is that the consequent restriction on domestic efficiency is hardly compatible with the existing theory of government intervention under which the primary objective of using domestic subsidies, domestic efficiency, is not sacrificed for another objective. We develop a trade-agreement model in which the magnitude of a legitimate domestic subsidy with which to address a production externality is private information. We find that an optimal agreement substantially restricts domestic efficiency for the international objective of expanding market access.

Suggested Citation

  • Lee, Gea M., 2016. "Optimal international agreement and restriction on domestic efficiency," Journal of International Economics, Elsevier, vol. 99(C), pages 138-155.
    • Handle: RePEc:eee:inecon:v:99:y:2016:i:c:p:138-155
    DOI: 10.1016/j.jinteco.2016.01.003
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    References listed on IDEAS

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    1. Petros C. Mavroidis & Patrick A. Messerlin & Jasper M. Wauters, 2008. "The Law and Economics of Contingent Protection in the WTO," Books, Edward Elgar Publishing, number 12731.
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    9. David De Remer, 2013. "The Evolution of International Subsidy Rules," Working Papers ECARES ECARES 2013-45, ULB -- Universite Libre de Bruxelles.
    10. Manuel Amador & Kyle Bagwell, 2013. "The Theory of Optimal Delegation With an Application to Tariff Caps," Econometrica, Econometric Society, vol. 81(4), pages 1541-1599, July.
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    Cited by:

    1. 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.
    2. Pramila Crivelli & Luca Rubini, 2019. "“Flying High in a Plane” Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft (WT/DS316/AB/RW)," RSCAS Working Papers 2019/78, European University Institute.
    3. Sang-Kee Kim & Young-Han Kim, 2020. "Welfare implications of upstream subsidy in the presence of countervailing duties under limited verifiability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 643-663, June.

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    More about this item

    Keywords

    Optimal agreement; Restriction on domestic efficiency; Market-access preservation rule; GATT/WTO subsidy rules;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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