infonet-economy

This paper analyzes the new World Trade Organization (WTO) dispute settlement system as a dynamic game under uncertainty, and explores its strategic elements and incentive structure. Our model delivers a number of implications, confirmed by already settled cases: Governments are often tempted to introduce trade restrictions which can guar- antee a positive payoff for a certain period of time. The complainant's agenda{setting capacity, nevertheless, can enhance economic efficiency by limiting the period in which trade restrictions are active. The losing party has a strong incentive to appeal the first instance findings of the procedure. Bilateral settlements can become feasible at different intermediate stages of the process. (pdf, 311k)