On the Role and Design of Dispute Settlement Procedures in International Trade Agreements

49 Pages Posted: 9 Jun 2008 Last revised: 10 Jun 2021

See all articles by Giovanni Maggi

Giovanni Maggi

Yale University; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Robert W. Staiger

Stanford University; University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 2008

Abstract

Formal economic analysis of trade agreements typically treats disputes as synonymous with concerns about enforcement. But in reality, most WTO disputes involve disagreements of interpretation concerning the agreement, or instances where the agreement is simply silent. And some have suggested that the WTO's Dispute Settlement Body (DSB) might serve a useful purpose by granting "exceptions" to rigid contractual obligations in some circumstances. In each of these three cases, the role played by the DSB amounts to "completing" various dimensions of an incomplete contract. Moreover, there is a debate among legal scholars on whether or not precedent-setting in DSB rulings may enhance the performance of the institution. All of this points to the importance of understanding the implications of the different possible degrees of activism in the role played by the DSB. In this paper we bring formal analysis to bear on this broad question. We characterize the choice of contractual form and DSB role that is optimal for governments under various contracting conditions. A novel feature of our approach is that it highlights the interaction between the design of the contract and the design of the dispute settlement procedure, and it views these as two components of a single over-arching institutional design problem.

Suggested Citation

Maggi, Giovanni and Staiger, Robert W., On the Role and Design of Dispute Settlement Procedures in International Trade Agreements (June 2008). NBER Working Paper No. w14067, Available at SSRN: https://ssrn.com/abstract=1142239

Giovanni Maggi (Contact Author)

Yale University ( email )

New Haven, CT 06511
United States
203-432-3569 (Phone)

National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Robert W. Staiger

Stanford University ( email )

Stanford, CA 94305
United States

University of Wisconsin - Madison - Department of Economics ( email )

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Madison, WI 53706
United States
608-262-2265 (Phone)

National Bureau of Economic Research (NBER)

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