Research Papers in Economics, Department of Economics, Stockholm University
Does Hidden Information Make Trade Liberalization More Fragile?
Abstract: This paper focuses on the impact of hidden information on
strategic interaction in the context of trade agreements. In the presence
of informational asymmetry it is possible that a tradeoff between
liberalization and sustainability of cooperation emerges. It is shown that
it may be optimal to agree on a degree of liberalization associated with a
strictly positive ex ante probability of deviation occurring. In that case,
cooperation will break down in …finite time, and the optimal degree of
liberalization cannot be applied indefinitely.
Keywords: Trade agreements; repeated games; asymmetric information; trade policy; (follow links to similar papers)
JEL-Codes: C72; C73; D82; F13; (follow links to similar papers)
35 pages, June 24, 2010
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