TY  - JOUR
AU  - Maggi,Giovanni
AU  - Staiger,Robert W.
TI  - On the Role and Design of Dispute Settlement Procedures in International Trade Agreements
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14067
PY  - 2008
Y2  - June 2008
UR  - http://www.nber.org/papers/w14067
L1  - http://www.nber.org/papers/w14067.pdf
N1  - Author contact info:
Giovanni Maggi
Department of Economics
Yale University
37 Hillhouse Avenue Rm 27
New Haven, CT 06511
Tel: 203/432-3569
Fax: 203/432-6323
E-Mail: giovanni.maggi@yale.edu

Robert W. Staiger
Department of Economics
The University of Wisconsin
1180 Observatory Drive
Madison, WI  53705
Tel: 608/262-2265
Fax: 608/263-3876
E-Mail: rstaiger@wisc.edu
AB  - Formal economic analysis of trade agreements typically treats disputes as synonymous with concerns about enforcement. But in reality, most WTO disputes involve disagreements of interpretation concerning the agreement, or instances where the agreement is simply silent. And some have suggested that the WTO's Dispute Settlement Body (DSB) might serve a useful purpose by granting "exceptions" to rigid contractual obligations in some circumstances. In each of these three cases, the role played by the DSB amounts to "completing" various dimensions of an incomplete contract. Moreover, there is a debate among legal scholars on whether or not precedent-setting in DSB rulings may enhance the performance of the institution. All of this points to the importance of understanding the implications of the different possible degrees of activism in the role played by the DSB. In this paper we bring formal analysis to bear on this broad question. We characterize the choice of contractual form and DSB role that is optimal for governments under various contracting conditions. A novel feature of our approach is that it highlights the interaction between the design of the contract and the design of the dispute settlement procedure, and it views these as two components of a single over-arching institutional design problem.
ER  -