Trade Agreements as Endogenously Incomplete Contracts

53 Pages Posted: 27 Jun 2007

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: January 2007

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.

Keywords: Endogenously incomplete contracts, GATT, trade agreement, WTO

JEL Classification: D86, F13, K33

Suggested Citation

Horn, Henrik and Maggi, Giovanni and Staiger, Robert W., Trade Agreements as Endogenously Incomplete Contracts (January 2007). CEPR Discussion Paper No. 6037, Available at SSRN: https://ssrn.com/abstract=996888

Henrik Horn (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
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Centre for Economic Policy Research (CEPR) ( email )

London
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Bruegel ( email )

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Giovanni Maggi

Yale University ( email )

New Haven, CT 06511
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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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