Working Paper No. 689

Trade Agreements as Endogenously Incomplete Contracts

Published: January 3, 2007Pages: 50Keywords: Trade Agreement; WTO; GATT; Endogenously Incomplete ContractsJEL-codes: F13; K33; D86

Trade Agreements as Endogenously Incomplete Contracts Henrik Horn, Giovanni Maggi and Robert W. Staiger


We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. Inspite 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.

 

Henrik Horn

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henrik.horn@ifn.se

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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