The Theory of the WTO
by
Kyle Bagwell
Columbia University, Economics and Business
Coauthors: Robert Staiger (University of Wisconsin)

In this talk, I will summarize some recent research that uses game theory to better understand the purpose and design of the WTO. Historical experience and traditional trade-agreement theory suggest that non-cooperative interactions between governments result in tariffs that are inefficiently high. From this perspective, the WTO's purpose may be understood in terms of the desire of governments to cooperate by reciprocally lowering tariffs, so as to solve their Prisoners' Dilemma problem. But, if this is the purpose of the WTO, are the negotiation rules of the WTO well designed? This question invites an interpretation and evaluation of the central principles of the WTO. The principles of reciprocity and non-discrimination (MFN) are the two pillars of the WTO architecture, and I will describe theoretical findings suggesting that these principles are well designed to deliver efficiency-enhancing tariff reductions. The WTO allows also for regional (preferential) trade agreements; however, the theoretical support for this feature of the WTO is ambiguous. Drawing on the theory of repeated games, I will interpret as well the manner in which WTO agreements are enforced. Finally, a contentious public debate has recently emerged with regard to the proposal that tariffs and labor/environmental standards be linked. I will describe research that addresses this issue. The presentation will be based on joint work (several different papers) with Robert Staiger at the University of Wisconsin

Date received: June 22, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Mathematical Conference Abstracts. Document # cafk-80.