Limiting Cross-Retaliation when Punishment is Limited: How DSU Article 22.3 Complements GATT Article XXVIII

This paper analyzes two prominent institutional rules in the international trading system: a lim- ited cross-retaliation rule characterized by the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) Article 22.3 and a limited punishment rule characterized by the General Agreement on Taris and Trade (GATT) Article XXVIII. In general, both rules are designed to limit the countermeasures upon a violation; however, the former rule species the limits of composition in retaliation, whereas the latter one designates the limits of retaliation magnitude. We show that, albeit seemingly unrelated, the limited cross-retaliation rule complements the limited punishment rule in per- mitting greater trade liberalization. Specically, we show how the limited cross-retaliation rule also helps limit the incentives to violate the trade agreement when the limited punishment rule prevails.

Starting Small in Free Trade Agreements

This paper analyzes the structure of cooperation between two large countries under one-sided incomplete information. Foreign government privately observes its likelihood of experiencing a political economy shock in each period. Home government’s prior belief about this likelihood is updated in a Bayesian fashion as the relationship continues. We show that the home government employs its privilege to design a contract so as to start with a few-goods-agreement, and increase the extent of cooperation gradually as its belief is favorably updated through periods. We also provide the conditions under which the home government makes the partner reveal its type in the beginning, or enables it to stay in a cooperative relationship without a complete revelation. As opposed to conventional approaches that relate gradualism with cost of liberalization, we show that asymmetric information provides a sufficient reason for gradualism to emerge.Gradualism, Free Trade Agreements, Asymmetric Information

Starting Small in Free Trade Agreements

Abstract. This paper analyzes the structure of cooperation between two large countries under onesided incomplete information. Foreign government privately observes its likelihood of experiencing a political economy shock in each period. Home government's prior belief about this likelihood is updated in a Bayesian fashion as the relationship continues. We show that the home government employs its privilege to design a contract so as to start with a few-goods-agreement, and increase the extent of cooperation gradually as its belief is favorably updated through periods. We also provide the conditions under which the home government makes the partner reveal its type in the beginning, or enables it to stay in a cooperative relationship without a complete revelation. As opposed to conventional approaches that relate gradualism with cost of liberalization, we show that asymmetric information provides a sufficient reason for gradualism to emerge. Codes: F13, F15, D82, D86, F53 JEL Classificatio

Equivalent income versus equivalent lifetime: does the metric matter?

peer reviewe

Structure of international cooperation in trade, investment and environment

This dissertation analyzes the obstacles against further cooperation in international economic relations. The first essay explains the gradual nature of trade liberalization. I show that existence of asymmetric information between governments provides a sufficient reason for gradualism to exist. Governments prefer starting small to reduce the cost of partner’s betrayal when there is sufficient degree of information asymmetry regarding the partner’s type. Learning about partner’s incentive structure enhances expectations, encouraging governments to increase their current level of cooperation. Specifically, the uninformed government’s subjective belief for the trading partner being good is improved as the partner acts cooperatively. This updated belief, in turn, lowers the subjective probability of future betrayal, enabling further progress in cooperation. The second essay analyzes the relationship between two countries facing two policy dilemmas in an environment with two way goods and capital flows. When issues are independent and countries are symmetric, signing separate agreements for tariffs (Free Trade Agreements-FTA) and for taxes (Tax Treaties-TT) provides the identical level of enforcement as signing a linked agreement. However, linkage can still improve the joint welfare by transferring the slack enforcement power in a case of asymmetric issues or countries. I report non-results in two cases where the policy issues are interconnected due to technological spillover effect of FDI. Moreover, I show that linking the agreements actually reduces enforcement when agreements are linked under a limited punishment rule and policy variables are strategic substitutes. The third essay investigates the welfare/enforcement consequences of linking trade and environmental agreements. In the standard literature, linking the agreements generate non-trivial results only when there is structural relation between the issues. I focus on institutional design of the linkage and show that even if environmental aspects of international trade are negligible linking the agreements might still have some interesting welfare implications under current GATT Rules. Specifically, when traded goods are substitutes in consumption, linking the environmental agreement with trade agreement under the Withdrawal of Equivalent Concession Rule (Article XXVIII) will reduce the enforcement. However, enforcement in environmental issue increases when the same rule is implemented in the absence of linkage

Aging and the Inherited Wealth of Nations

peer reviewe

The domestic welfare loss of Syrian civil war: an equivalent income approach

This paper uses an equivalent income approach to quantify the domes-tic welfare loss due to the Syrian Civil War. Focusing on the (income, life expectancy) space, we show that the equivalent income has fallen by about 60 % in comparison to the pre-conflict level. We also find that the differential between the equivalent income and the standard income for 2016 lies between $75 and$144. Although this low willingness to pay for coming back to pre-conflict survival conditions can be explained by extreme poverty due to the War, the small gap between standard and equivalent incomes tends to question the extra value brought by the latter for the measurement of standards of living in situations of severe poverty. We examine some solutions to that puzzle, including a more general specification of the utility function, the shift from an ex ante approach (valuing changes in life expectancy) to an ex post approach (valuing changes in distributions of realized longevities), as well as considering population ethical aspects. None of those solutions is fully successful in solving the puzzle

Equivalent income versus equivalent lifetime: does the metric matter?

We examine the e§ects of the postulated metric on the measurement of well-being, by comparing, in the (income, lifetime) space, two indexes: the equivalent income index and the equivalent lifetime index. The conditions under which the equivalent lifetime index exists are more restrictive than the ones under which the equivalent income index exists, but it is possible to define an alternative equivalent lifetime index, based on two reference income levels, for which the non-existence problem is less acute. Those indexes are also shown to satisfy different properties concerning interpersonal well-being comparisons, which can lead to contradictory rankings. While those incompatibilities arise under distinct indifference maps, we also explore the effects of the metric while relying on a unique indifference map, and show that, even in that case, the postulated metric matters for the measurement of well-being