Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and the Possible Role of the WTO

International trade disputes often involve the WTO as a third party that generates impartial opinions on potential violations when countries receive imperfect and private signals of violations. To identify the role that the WTO plays in enforcing trade agreements, this paper first explores what countries can achieve without the WTO by characterizing optimal private trigger strategies (PTS) under which each country triggers a punishment phase by imposing an explicit tariff based on privately-observed imperfect signals of the other country's concealed trade barriers. It identifies the condition under which countries can restrain the use of concealed barriers based on PTS and establishes that countries will not reduce the cooperative protection level to its minimum attainable level under the optimal PTS. This paper then considers third-party trigger strategies (TTS) under which the WTO allows each country to initiate a punishment phase based on the WTO's judgment (i.e., its signals) about potential violations. The WTO thus changes the nature of punishment-triggering signals from private into public, enabling countries to use punishment phases of any length under TTS, which in turn facilitates a better cooperative equilibrium. The optimal TTS will involve an asymmetric and minimum punishment if the probability of a punishment phase being triggered is lower than a critical level, but it will entail punishments involving a permanent Nash tariff war if the probability of a punishment phase is higher than a certain level. A numerical comparison of the optimal TTS and optimal PTS indicates that the contribution of the WTO is likely to be significant when the signals of potential violations are relatively accurate, as this enables countries to use a more efficient punishment, such as an asymmetric and minimum punishment.Concealed Trade Barriers, Imperfect Private Monitoring, International Trade Agreements, Repeated Game, Trade Disputes, Trigger Strategies, WTO

Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO

International trade disputes often involve the WTO as a third party that generates impartial opinions of potential violations when countries receive imperfect and private signals of violations. To identify the role that the WTO plays in enforcing trade agreements, this paper first characterizes what countries can achieve alone in a repeated bilateral trade relationship in which they can secretly raise their protection levels through concealed trade barriers. In particular, countries adopt "private trigger strategies (PTS)" under which each country triggers a punishment phase by imposing an explicit tariff based on its privately observed imperfect signals of such barriers. This paper identifies the condition under which countries can restrain the use of concealed barriers based on simple PTS, where each country imposes its static optimal tariff in all periods under any punishment phase: The sensitivity of private signals rises in response to an increase in concealed protection. Any equilibrium payoff under almost strongly symmetric PTS will be identical to the one under simple PTS, as long as the initial punishment is triggered by a static optimal tariff, justifying the paper's focus on simple PTS. With countries maximizing their expected payoffs under the optimal PTS, they will not push down the cooperative protection level to its minimum attainable level, thus not setting it to the free trade level even when it is attainable. To analyze a possible role of the WTO, this paper considers "third-party trigger strategies (TTS)" under which the WTO allows each country to initiate a punishment phase based on the WTO's judgment (signals) about potential violations. The WTO changes the nature of punishment-triggering signals from private into public, enabling countries to use punishment phases of any length under TTS, which in turn facilitates a better cooperative equilibrium. The optimal TTS will involve an asymmetric and minimum punishment if the probability of a punishment phase being triggered is low enough, but it will entail punishments involving a permanent Nash tariff war if the probability of a punishment being triggered is high enough. A numerical comparison of the optimal TTS and optimal PTS indicates that the contribution of the WTO is likely to be significant when the signals of potential violations are relatively accurate. The WTO enables countries to adopt a more efficient punishment, such as the asymmetric and minimum punishment, which in turn enables countries to be less tolerant of potential violations and attain a higher level of cooperation as a result.

Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO

International trade disputes often involve the WTO as a third party that generates impartial opinions of potential violations when countries receive imperfect and private signals of violations. To identify the role that the WTO plays in enforcing trade agreements, this paper first characterizes what countries can achieve alone in a repeated bilateral trade relationship in which they can secretly raise their protection levels through concealed trade barriers. In particular, countries adopt gprivate trigger strategies (PTS)h under which each country triggers a punishment phase by imposing an explicit tariff based on its privately observed imperfect signals of such barriers. This paper identifies the condition under which countries can restrain the use of concealed barriers based on simple PTS, where each country imposes its static optimal tariff in all periods under any punishment phase: The sensitivity of private signals rises in response to an increase in concealed protection. Any equilibrium payoff under almost strongly symmetric PTS will be identical to the one under simple PTS, as long as the initial punishment is triggered by a static optimal tariff, justifying the paper's focus on simple PTS. With countries maximizing their expected payoffs under the optimal PTS, they will not push down the cooperative protection level to its minimum attainable level, thus not setting it to the free trade level even when it is attainable. To analyze a possible role of the WTO, this paper considers gthird-party trigger strategies (TTS)h under which the WTO allows each country to initiate a punishment phase based on the WTO's judgment (signals) about potential violations. The WTO changes the nature of punishment-triggering signals from private into public, enabling countries to use punishment phases of any length under TTS, which in turn facilitates a better cooperative equilibrium. The optimal TTS will involve an asymmetric and minimum punishment if the probability of a punishment phase being triggered is low enough, but it will entail punishments involving a permanent Nash tariff war if the probability of a punishment being triggered is high enough. A numerical comparison of the optimal TTS and optimal PTS indicates that the contribution of the WTO is likely to be significant when the signals of potential violations are relatively accurate. The WTO enables countries to adopt a more efficient punishment, such as the asymmetric and minimum punishment, which in turn enables countries to be less tolerant of potential violations and attain a higher level of cooperation as a result.

Sustaining Free Trade with Imperfect Private Information about Non-Tariff Barriers

This paper examines the issue of sustaining free trade when countries receive imperfect private information about each other’s non-tariff barriers. Because the countries can misrepresent their private belief about other countries’ protection levels, the punishment scheme to deter deviations from free trade should provide right incentives for the countries to elicit the true private information. This incentive constraint (ICP) restricts the length of punishment phases. If the private information is almost perfect, the ICP is not a binding constraint for symmetric countries in sustaining symmetric cooperation. However, the ICP does become a binding constraint if there exists a large enough asymmetry in the countries’ incentives to deviate from free trade, or if there exists a large enough asymmetry in the transparency of countries’ trade policies. Then, a mechanism that publicizes the information about non-tariff barriers, like Trade Policy Review Mechanism (TPRM) of WTO, can play a positive role in restoring cooperation by relaxing the ICP.International Economic Order, Non-tariff Barriers, Imperfect Private Information, Noncooperative Game

Sustaining Free Trade with Imperfect Private Information about Non-Tariff Barriers

This paper examines the issue of sustaining free trade when countries receive imperfect private information about each other's non-tariff barriers. Because the countries can misrepresent their private briefs about other countries' protection levels, the punishment scheme to deter deviations from free trade should provide right incentives for the countries to elicit the true private information. This incentive constraint (ICP) restricts the length of punishment phases. If the private information is almost perfect, the ICP is not a binding constraint for symmetric countries in sustaining symmetric cooperation. However, the ICP does become a binding constraint if there exists a large enough asymmetry in the countries' incentives to deviate from free trade, or if there exists a large enough asymmetry in clarity of the countries' trade policies. Then, a mechanism that publicizes the information about non-tariff barriers, like Trade Policy Review Mechanism (TPRM) of WTO, can play a positive role in restoring cooperative behaviors by relaxing the ICP.

Dynamic Pricing in the Presence of Antidumping Policy: Theory and Evidence

Antidumping (AD) duties are calculated as the difference between the foreign firm's product price in the export market and some definition of 'normal' or 'fair' value, often the foreign firm's product price in its own market. Additionally, AD laws allow for recalculation of these AD duties over time in what are known as administrative reviews. This paper examines for the first time the resulting dynamic pricing problem of a foreign firm that faces such an AD trade protection policy in its export market. When AD duties are certain for any dumping that occurs, we obtain the surprising result that dumping and AD duties should increase over time toward a stationary equilibrium value. Adding uncertainties prevalent in AD enforcement into our analysis changes these conclusions substantially and leads to more realistic testable implications. Firms with ex ante expectations that the probability of AD enforcement is low, or with expectations that the probability of a termination/VER (instead of AD duties) is high, will decrease their dumping and AD duties over time in the administrative review process once they face AD duties. Using detailed data from U.S. AD investigations filed from 1980-1995, we find evidence consistent with these hypotheses stemming from our analysis with uncertain AD enforcement and provide empirical evidence consistent with James Anderson's domino dumping hypothesis.

The Role of Pre-trial Settlement in International Trade Disputes

To analyze the role of pre-trial settlement in international trade dispute resolutions, this paper develops a simple model of trade and trade disputes in which a government is subject to private political pressure for protection, of which its trading partner receives imperfect private signal. As a way to enforce an optimal contingent protection agreement that maximizes the expected joint payoff of governments of trading countries, it considers and compares three alternative enforcement schemes, namely the automatic DSB-ruling scheme, the on-demand DSB-ruling scheme with pre-trial settlement possibility, and the on-demand DSB-ruling scheme without pre-trial settlement possibility. If the private signal of the political pressure for protection is accurate enough, allowing pre-trial settlements increases the expected joint payoff of governments that try to enforce the optimal contingent protection agreement

A Model of Hierarchical Professionals: Cooperation and Conflict between Anesthesiologists and CRNAs

This paper examines a labor market with two professional groups both cooperating and directly competing with each other: certified registered nurse anesthetists (CRNAs) and anesthesiologists (MDAs). We develop a model where the supply of MDAs endogenously determines (1) the earnings of CRNAs and MDAs, and (2) the extent of supervision of CRNAs by MDAs. We also analyze how MDAs may lobby to limit the scope of practice of CRNAs, and the resulting market equilibrium. Our theoretical model can be applied to the analysis of relationships between other hierarchical professionals with overlapping responsibilities, such as nurse practitioners and primary care physicians.

Vertical Integration for Quality Signaling

In the presence of consumers incomplete information of firms ability to produce quality components, we analyze firms incentive to commit to a long-term relationship as a way to convince consumers about forming a high-type pair. In contrast to the result of no brand leverage obtained by Choi and Jeon (2007), our analysis demonstrates that a brand-named firm can restore its leverage by committing to a long-term relationship. To overcome the time inconsistency problem in a long-term contract, firms may utilize vertical integration with relation-specific investment. This signaling motivation for vertical integration is different from the explanations that currently exist.Financial support from the Center for Corporate Competitiveness of Seoul National University Institute of Economic Research with the grant provided by the Seoul National University Foundation. La gratefully acknowledges financial support from the Brain Korea 21 program of Seoul National University

The Clinical Characteristics of Normoalbuminuric Renal Insufficiency in Korean Type 2 Diabetic Patients: A Possible Early Stage Renal Complication

It has been recently reported that a considerable portion of diabetic patients with renal insufficiency show normoalbuminuria. As little is known about normoalbuminuric renal insufficiency in the Asian population, we examined its prevalence and clinical characteristics in Korean type 2 diabetic patients. We studied 562 patients with type 2 diabetes from Seoul National University Hospital. The estimated glomerular filtration rate (eGFR) was calculated by the Modification of Diet in Renal Disease formula and the degree of albuminuria was evaluated by spot urine albumin-creatinine ratio. Of 562 patients, 151 (26.9%) patients had renal insufficiency (eGFR <60 mL/min/1.73m2). Among them, 44 (29.1%) patients had normoalbuminuria. After excluding the patients using renin-angiotensin system (RAS) inhibitors, the prevalence of normoalbuminuric renal insufficiency was 35.3% (18 of 51 patients). Compared with micro- and macroalbuminuric renal insufficiency, normoalbuminuric renal insufficiency was associated with the female predominance, shorter duration of diabetes, lower prevalence of diabetic retinopathy, and lower prevalence of using antihypertensive drugs except RAS inhibitors. The prevalence decreased progressively with an increase in the duration of diabetes and an increase in the severity of retinopathy. Normoalbuminuric renal insufficiency was prevalent in Korean type 2 diabetic patients. The association with a shorter duration of the diabetes and a lower prevalence of retinopathy suggests that it might be an early stage renal complication