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

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  • Barbara Dluhosch
  • Daniel Horgos

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 non- cooperative 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

  • Barbara Dluhosch & Daniel Horgos, 2012. "(When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off?," FIW Working Paper series 085, FIW.
    • Handle: RePEc:wsr:wpaper:y:2012:i:085
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    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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