Equity-Efficiency Tradeoffs in International Bargaining

34 Pages Posted: 29 Jan 2019

See all articles by Adib Bagh

Adib Bagh

University of Kentucky - Departments of Economics and Mathematics

Josh Ederington

University of Kentucky - Department of Economics

Date Written: December 2018

Abstract

This paper analyzes the outcome of international negotiations between asymmetric countries in the absence of efficient transfers. A main result is that there is a equity-efficiency tradeoff to reducing the flexibility of negotiations in making transfers across countries. Specifically, an increase in the inefficiency of transfers will reduce aggregate global welfare but, when the degree of asymmetry is sufficiently small, can result in a more equitable agreement that benefits the country that is at a bargaining disadvantage. Similarly, we demonstrate that increases in bargaining asymmetry can also make the disadvantaged country better-off at the expense of global welfare. As an application, we show that preventing monetary side-payments in trade negotiations between a large and small country can benefit the small country at the expense of the overall efficiency of the agreement.

Keywords: bargaining, negotiations, international agreements

JEL Classification: F13, C78

Suggested Citation

Bagh, Adib and Ederington, Josh, Equity-Efficiency Tradeoffs in International Bargaining (December 2018). Available at SSRN: https://ssrn.com/abstract=3317699 or http://dx.doi.org/10.2139/ssrn.3317699

Adib Bagh

University of Kentucky - Departments of Economics and Mathematics ( email )

Lexington, KY 40506
United States

Josh Ederington (Contact Author)

University of Kentucky - Department of Economics ( email )

335 Business and Economics Building
Lexington, KY 40506
United States

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