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American Economic Review: Vol. 100 No. 1 (March 2010)

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Trade Agreements as Endogenously Incomplete Contracts

Article Citation

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

DOI: 10.1257/aer.100.1.394

Abstract

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)

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Authors

Horn, Henrik (Research Institute of Industrial Economics, Stockholm)
Maggi, Giovanni (Yale U)
Staiger, Robert W. (Stanford U)

JEL Classifications

D86: Economics of Contract: Theory
F13: Trade Policy; International Trade Organizations


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