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(When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off?

Author

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  • Dluhosch, Barbara

    (Helmut Schmidt University, Hamburg)

  • Horgos, Daniel

    (Helmut Schmidt University, Hamburg)

Abstract

In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of noncooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.

Suggested Citation

  • Dluhosch, Barbara & Horgos, Daniel, 2012. "(When) Does Tit-for-Tat Diplomay in Trade Policy Pay Off?," Working Paper 116/2012, Helmut Schmidt University, Hamburg.
    • Handle: RePEc:ris:vhsuwp:2012_116
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    Cited by:

    1. Aurélie Cassette & Etienne Farvaque, 2022. "American and Australian Tariff Policies: Do They Rock or Tango or Roll?," Sustainability, MDPI, vol. 14(20), pages 1-14, October.

    More about this item

    Keywords

    Int. Political Economy; Trade Policy Conflicts; Tit-for-Tat; WTO Dispute Settlement;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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