NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade Agreements as Endogenously Incomplete Contracts

Henrik Horn, Giovanni Maggi, Robert W. Staiger

NBER Working Paper No. 12745
Issued in December 2006
NBER Program(s):   ITI

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.

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Document Object Identifier (DOI): 10.3386/w12745

Published: Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2010. "Trade Agreements as Endogenously Incomplete Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 394-419, March. citation courtesy of

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