IDEAS home Printed from https://ideas.repec.org/p/ags/catpwp/116850.html
   My bibliography  Save this paper

Trade Agreements, Political Economy and Endogenously Incomplete Contracts

Author

Listed:
  • Li, Na
  • Ker, Alan P.

Abstract

We develop a political economy model of trade agreements following along the line of Grossman and Helpman (1995a) yet incorporating contracting costs, uncertainty and multiple policy instruments. We show that rent-seeking efforts do not affect tariff rates as they are offset by the substitution effect of domestic production subsidies. Similar to Horn et al (2010), we find the coexistence of uncertainty and contracting costs make optimal trade agreements incomplete contracts. Our model helps explain differential treatment on subsidies, countervailing duties, and the national treatment principle - all key provisions of the current WTO agreement.

Suggested Citation

  • Li, Na & Ker, Alan P., 2011. "Trade Agreements, Political Economy and Endogenously Incomplete Contracts," Working Papers 116850, Canadian Agricultural Trade Policy Research Network.
    • Handle: RePEc:ags:catpwp:116850
    DOI: 10.22004/ag.econ.116850
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/116850/files/CATPRN-WP_2011-01_Li-Ker.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.116850?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kaemfer, William H & Lowenberg, Anton D, 1988. "The Theory of International Economic Sanctions: A Public Choice Approach," American Economic Review, American Economic Association, vol. 78(4), pages 786-793, September.
    2. Booth, Alison L, 1984. "A Public Choice Model of Trade Union Behaviour and Membership," Economic Journal, Royal Economic Society, vol. 94(376), pages 883-898, December.
    3. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2010. "Trade Agreements as Endogenously Incomplete Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 394-419, March.
    4. Mayer, Wolfgang & Riezman, Raymond G., 1987. "Endogenous choice of trade policy instruments," Journal of International Economics, Elsevier, vol. 23(3-4), pages 377-381, November.
    5. Kaempfer, William H & Lowenberg, Anton D, 1989. "The Theory of International Economic Sanctions--A Public Choice Approach: Reply," American Economic Review, American Economic Association, vol. 79(5), pages 1304-1306, December.
    6. Schleich, Joachim & Orden, David, 1996. "Efficient choice among domestic and trade policies in the Grossman-Helpman Interest-Group Model," Bulletins 7458, University of Minnesota, Economic Development Center.
    7. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
    8. Henrik Horn, 2006. "National Treatment in the GATT," American Economic Review, American Economic Association, vol. 96(1), pages 394-404, March.
    9. Levy, Philip I., 1999. "Lobbying and international cooperation in tariff setting," Journal of International Economics, Elsevier, vol. 47(2), pages 345-370, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Eric Conglin Chi & Halis Murat Yildiz, 2024. "Dynamic preferential trade agreement formation and the role of political economy," Economic Inquiry, Western Economic Association International, vol. 62(2), pages 748-781, April.
    3. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2010. "Trade Agreements as Endogenously Incomplete Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 394-419, March.
    4. Horn, Henrik & Tangerås, Thomas, 2016. "Economics and Politics of International Investment Agreements," Working Paper Series 1140, Research Institute of Industrial Economics.
    5. Yang, Deli & Sonmez, Mahmut (Maho), 2018. "Global norm of national treatment for patent uncertainties: A longitudinal comparison between the US and China," Journal of World Business, Elsevier, vol. 53(2), pages 164-176.
    6. Sergei Guriev & Mikhail Klimenko, 2015. "Duration and Term Structure of Trade Agreements," Economic Journal, Royal Economic Society, vol. 125(589), pages 1818-1849, December.
    7. Timothy M. Peterson, 2014. "Taking the cue: The response to US human rights sanctions against third parties," Conflict Management and Peace Science, Peace Science Society (International), vol. 31(2), pages 145-167, April.
    8. Cole, Matthew T. & Lake, James & Zissimos, Ben, 2021. "Contesting an international trade agreement," Journal of International Economics, Elsevier, vol. 128(C).
    9. Djerdjian, Daron O., 2009. "Economies of scale and trade policy: The median voter model revisited," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 479-487, June.
    10. Das, Satya P., 2001. "Endogenous distribution and the political economy of trade policy," European Journal of Political Economy, Elsevier, vol. 17(3), pages 465-491, September.
    11. Jin Mun Jeong & Dursun Peksen, 2019. "Domestic Institutional Constraints, Veto Players, and Sanction Effectiveness," Journal of Conflict Resolution, Peace Science Society (International), vol. 63(1), pages 194-217, January.
    12. Vincent Anesi & Giovanni Facchini, 2019. "Coercive Trade Policy," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 225-256, August.
    13. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    14. Ornelas, Emanuel, 2008. "Feasible multilateralism and the effects of regionalism," Journal of International Economics, Elsevier, vol. 74(1), pages 202-224, January.
    15. Jerg Gutmann & Matthias Neuenkirch & Florian Neumeier, 2024. "Political Economy of International Sanctions," Research Papers in Economics 2024-07, University of Trier, Department of Economics.
    16. Lake, James & Roy, Santanu, 2017. "Are global trade negotiations behind a fragmented world of “gated globalization”?," Journal of International Economics, Elsevier, vol. 108(C), pages 117-136.
    17. Difei Geng, 2024. "Tariffs, product standards, and national treatment at the WTO," Economic Inquiry, Western Economic Association International, vol. 62(3), pages 1105-1133, July.
    18. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
    19. Lake, James & Nken, Moïse & Yildiz, Halis Murat, 2020. "Tariff bindings and the dynamic formation of Preferential Trade Agreements," Journal of International Economics, Elsevier, vol. 122(C).
    20. Robert W. Staiger & Alan O. Sykes, 2011. "International Trade, National Treatment, and Domestic Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 40(1), pages 149-203.

    More about this item

    Keywords

    Agricultural and Food Policy; International Relations/Trade; Political Economy; Public Economics;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:catpwp:116850. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/catprca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.