TY - JOUR
T1 - The optimal design of international trade institutions
T2 - Uncertainty and escape
AU - Rosendorff, B. Peter
AU - Milner, Helen V.
N1 - Funding Information:
International Organization 55, 4, Autumn 2001, pp. 829-857 © 2001 by The IO Foundation and the Massachusetts Institute of Technology
PY - 2001
Y1 - 2001
N2 - International institutions that include an escape clause generate more durable and stable cooperative international regimes and are easier to achieve ex ante. The escape clause is endogenous in a model of repeated trade-barrier setting in the presence of symmetric, two-sided, political uncertainty. They permit, along the equilibrium path, countries to temporarily deviate from their obligations in periods of excessive, unexpected political pressure at some prenegotiated cost. The architects of international agreements optimally choose a cost so that escape clauses are neither too cheap to use (encouraging frequent recourse, effectively reducing the benefits of cooperation) nor too expensive (making their use rare and increasing the chance of systemic breakdown). The international institution's crucial role is to provide information, verifying that the self-enforcing penalty has been paid (voluntarily), rather than to coerce payment. Escape clauses also make agreements easier to reach initially. Their flexibility reassures states that the division of the long-term gains from the agreement is not immutable.
AB - International institutions that include an escape clause generate more durable and stable cooperative international regimes and are easier to achieve ex ante. The escape clause is endogenous in a model of repeated trade-barrier setting in the presence of symmetric, two-sided, political uncertainty. They permit, along the equilibrium path, countries to temporarily deviate from their obligations in periods of excessive, unexpected political pressure at some prenegotiated cost. The architects of international agreements optimally choose a cost so that escape clauses are neither too cheap to use (encouraging frequent recourse, effectively reducing the benefits of cooperation) nor too expensive (making their use rare and increasing the chance of systemic breakdown). The international institution's crucial role is to provide information, verifying that the self-enforcing penalty has been paid (voluntarily), rather than to coerce payment. Escape clauses also make agreements easier to reach initially. Their flexibility reassures states that the division of the long-term gains from the agreement is not immutable.
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U2 - 10.1162/002081801317193619
DO - 10.1162/002081801317193619
M3 - Article
AN - SCOPUS:0035563904
SN - 0020-8183
VL - 55
SP - 829
EP - 857
JO - International Organization
JF - International Organization
IS - 4
ER -