Trade Agreements as Endogenously Incomplete Contracts

51 Pages Posted: 13 Dec 2006 Last revised: 30 Apr 2021

See all articles by Henrik Horn

Henrik Horn

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); Bruegel

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: December 2006

Abstract

We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. In spite of its simplicity, the model yields rich predictions on the structure of the optimal trade agreement and how this depends on the fundamentals of the contracting environment. We argue that taking contracting costs explicitly into account can help explain a number of key features of real trade agreements.

Suggested Citation

Horn, Henrik and Maggi, Giovanni and Staiger, Robert W., Trade Agreements as Endogenously Incomplete Contracts (December 2006). NBER Working Paper No. w12745, Available at SSRN: https://ssrn.com/abstract=949755

Henrik Horn

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Stockholm, SE-102 15
Sweden

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://www.econ-law.se

Bruegel ( email )

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Belgium

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 )

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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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United States

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