Breach, Remedies and Dispute Settlement in Trade Agreements

53 Pages Posted: 26 Oct 2009

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)

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Date Written: October 26, 2009

Abstract

We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of "property rights" or "liability rules." We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus "fighting it out."

Keywords: International trade agreements, Breach remedies, Dispute settlement

JEL Classification: D02, D86, F13, K12, K33

Suggested Citation

Maggi, Giovanni and Staiger, Robert W., Breach, Remedies and Dispute Settlement in Trade Agreements (October 26, 2009). Cowles Foundation Discussion Paper No. 1735, Available at SSRN: https://ssrn.com/abstract=1494451 or http://dx.doi.org/10.2139/ssrn.1494451

Giovanni Maggi (Contact Author)

Yale University ( email )

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Robert W. Staiger

Stanford University ( email )

Stanford, CA 94305
United States

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

1180 Observatory Drive
Madison, WI 53706
United States
608-262-2265 (Phone)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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