Optimal international agreement and restriction on domestic efficiency

Is the WTO Passé?

“…73 Another important caveat is that a marketaccess-preservation rule may fail to be optimal in settings with private information, as Lee (2016) argues. We discuss his and related papers in greater detail in section 5.…”

“…The case for shallow integration then survives largely intact, albeit with some modification: an efficient self-enforcing agreement generally takes the form of a minimum market-access level combined with a binding tariff cap. But, as Lee (2016) shows, if private information takes a " hidden-information" form and concerns a government's type (e.g., the magnitude of a domestic distortion associated with an externality), and if the type is uncertain at the time the agreement is written, then a simple market-access-preservation rule leads to excessive protection for some types and is not optimal. Furthermore, while a state-contingent market-access-preservation rule could implement the first-best allocation were the state observable, such an allocation is not incentive compatible when information 113 Sauré (2014) argues that qualifications to the case for shallow integration also arise when the agreement must be self-enforcing and there exist intertemporal linkages that can affect the deviation payoff, so that the extent to which an agreement is self-enforcing may vary with policies, even among policies that generate the same market access.…”

Is the WTO passé?

“…The case for shallow integration then survives largely intact, albeit with some modi…cation: an e¢ cient self-enforcing agreement generally takes the form of a minimum market-access level combined with a binding tari¤ cap. But, as Lee (2014) shows, if private information takes a "hidden-information" form and concerns a government's type (e.g., the magnitude of a domestic 1 1 2 Sauré (2014) argues that quali…cations to the case for shallow integration also arise when the agreement must be self-enforcing and there exist inter-temporal linkages that can a¤ect the deviation payo¤, so that the extent to which an agreement is self-enforcing may vary with policies, even among policies that generate the same market access. Sauré shows that the freedom over domestic policies provided under shallow integration then might induce a government to adjust its policies in a manner that ultimately changes its own gains from deviation in an unanticipated way and renders the new policies unsustainable.…”

“…2 The idea is that governments may be hesitant to negotiate tari¤ bindings if subsidies are disciplined heavily, since tari¤s may then be the best remaining means of providing assistance to domestic import-competing industries.7 3 Another important caveat is that a market-access-preservation rule may fail to be optimal in settings with private information, asLee (2014) argues. We discuss his and related papers in greater detail in Section 5.…”

The Design of Trade Agreements

“…3 See alsoBagwell and Lee (2015) for a recent effort that interprets these restrictions from the perspective of the monopolistic competition model with heterogeneous firms developed byMelitz and Ottaviano (2008).3 4 Related existing research that emphasizes the presence of international non-pecuniary externalities includesLimão (2005) andSpagnola (1999aSpagnola ( , 1999b. Related research on trade agreements in the presence of domestic non-pecuniary externalities includesEderington (2001) andLee (2007Lee ( , 2014.…”