Multi-Issue Bargaining and Linked Agendas: Ricardo Revisited or No Pain No Gain
Ignatius J. Horstmann, James R. Markusen, Jack Robles
NBER Working Paper No. 8347
There has been much discussion about what issues should be included in international 'trade' negotiations. Different countries, firms and activists groups have quite different views regarding which items should (or should not) be negotiated together. Proposals run the gamut from no linking to linking trade with investment, the environment, labor and human-rights codes. This paper provides a formal framework for analyzing these questions. It employs a two-country, two-issue bargaining model and contrasts outcomes when issues are negotiated separately and when they are linked in some form. A key concept is 'comparative interest', analogous to Ricardian comparative advantage. We provide general results and note, in particular, where a country can benefit by agreeing to include an agenda item for which, when viewed by itself, the country does not receive a positive payoff.
Published: Horstmann, Ignatius J., James R. Markusen and Jack Robles. "Issue Linking In Trading Negotiations: Ricardo Revisited Or Not Pain No Gain," Review of International Economics, 2005, v13(2,May), 185-204.