The Case for Auctioning Countermeasures in the WTO

60 Pages Posted: 25 Aug 2003 Last revised: 8 Feb 2021

See all articles by Kyle Bagwell

Kyle Bagwell

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

Petros C. Mavroidis

Columbia University - Law School; European University Institute - Department of Law (LAW); European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Robert W. Staiger

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

Date Written: August 2003

Abstract

A prominent problem with the WTO dispute settlement procedures is the practical difficulty faced by small and developing countries in finding the capacity to effectively retaliate against trading partners that are in violation of their WTO commitments. In light of this problem, Mexico has proposed that retaliation rights be made tradeable.' We offer a first formal analysis of the possibility that retaliation rights within the WTO system be allocated through auctions. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. A key feature of auction format is whether the country in violation of its WTO commitments is prevented from bidding to retire the right of retaliation: if so, then the possibility of auction failure' arises, in which no bids are made despite positive valuation by the bidders; if not, then auction failure is precluded, and indeed the right of retaliation is always retired. We also evaluate these different auction formats from normative (revenue, efficiency) standpoints.

Suggested Citation

Bagwell, Kyle and Mavroidis, Petros C. and Staiger, Robert W., The Case for Auctioning Countermeasures in the WTO (August 2003). NBER Working Paper No. w9920, Available at SSRN: https://ssrn.com/abstract=437489

Kyle Bagwell (Contact Author)

Stanford University - Department of Economics ( email )

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Petros C. Mavroidis

Columbia University - Law School ( email )

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Robert W. Staiger

Stanford University ( email )

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

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National Bureau of Economic Research (NBER)

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