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)

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
Stockholm, SE-102 15
Sweden

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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

Giovanni Maggi

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
United States

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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