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Title: Breach, Remedies and Dispute Settlement in Trade Agreements

Author(s): Giovanni Maggi and Robert W. Staiger

Publication Date: November 2009

Keyword(s): breach remedies, dispute settlement and international trade agreements

Programme Area(s): International Trade and Regional Economics

Abstract: We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of "property rights" or "liability rules." We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus "fighting it out."

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Bibliographic Reference

Maggi, G and Staiger, R. 2009. 'Breach, Remedies and Dispute Settlement in Trade Agreements'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7527