2006–2010

Trade Agreements as Endogenously Incomplete Contracts

Reprint No. 2010:13

Author(s): Henrik Horn, Giovanni Maggi and Robert W. StaigerYear: 2010 Title: American Economic Review Volume (No.): 100 (1) Pages: 394–419
Online article (restrictions may apply)


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. (JEL D86, F13)


Reference:
Horn, Henrik, Giovanni Maggi and Robert W. Staiger (2010), "Trade Agreements as Endogenously Incomplete Contracts". American Economic Review 100(1), 394–419.

Henrik Horn

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henrik.horn@ifn.se

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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