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The Cost of Credibility: Explaining Resistance to Interstate Dispute Resolution Mechanisms

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  • Guzman, Andrew T

Abstract

This paper explains why the use of mandatory dispute resolution clauses is the exception rather than the rule in international agreements. On one hand, these clauses increase the sanction for violation of the agreement and thereby increase the probability that the parties will comply. On the other hand, dispute resolution clauses impose a loss on the parties when violations occur. States, therefore, must balance the credibility and compliance benefits of a mandatory dispute resolution provision against the joint costs imposed by those provisions in the event of a violation. The paper develops a series of predictive and normative results based on the trade-off. For example, dispute resolution clauses are more likely in low-stakes than high-stakes agreements, in multilateral rather than bilateral agreements, and when tribunals are more accurate. The paper also offers support for the view that money damages (or other zero-sum transfers) should be encouraged in international dispute resolution. Copyright 2002 by the University of Chicago.

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  • Guzman, Andrew T, 2002. "The Cost of Credibility: Explaining Resistance to Interstate Dispute Resolution Mechanisms," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages 303-326, June.
    • Handle: RePEc:ucp:jlstud:v:31:y:2002:i:2:p:303-26
    DOI: 10.1086/340811
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    Cited by:

    1. Mondré, Aletta, 2011. "Choosing a forum for peaceful dispute settlement," TranState Working Papers 153, University of Bremen, Collaborative Research Center 597: Transformations of the State.
    2. Horn, Henrik & Mavroidis, Petros C., 2006. "A Survey of the Literature on the WTO Dispute Settlement System," Working Paper Series 684, Research Institute of Industrial Economics.
    3. Tan Li & Larry D. Qiu, 2021. "Beyond trade creation: Preferential trade agreements and trade disputes," Pacific Economic Review, Wiley Blackwell, vol. 26(1), pages 23-53, February.
    4. Bernauer, Thomas & Kalbhenn, Anna & Koubi, Vally & Ruoff, Gabi, 2010. "On commitment levels and compliance mechanisms: Determinants of participation in global environmental agreements," University of Göttingen Working Papers in Economics 94, University of Goettingen, Department of Economics.
    5. repec:got:cegedp:94 is not listed on IDEAS
    6. Thomas Bernauer & Anna Kalbhenn & Vally Koubi & Gabriele Spilker, 2013. "Is there a “Depth versus Participation” dilemma in international cooperation?," The Review of International Organizations, Springer, vol. 8(4), pages 477-497, December.
    7. Lee, Jiwon & Wittgenstein, Teresa, 2017. "Weak vs. Strong Ties: Explaining Early Settlement in WTO Disputes," ILE Working Paper Series 7, University of Hamburg, Institute of Law and Economics.
    8. Jon Hovi & Tora Skodvin, 2017. "Why the United States Supports International Enforcement for Some Treaties but not for Others," Politics and Governance, Cogitatio Press, vol. 5(2), pages 79-92.
    9. Tan LI & Larry D. QIU, 2015. "Beyond Trade Creation: Free Trade Agreements and Trade Disputes," Working Papers DP-2015-28, Economic Research Institute for ASEAN and East Asia (ERIA).

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