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Coercive Trade Policy†

Coercive Trade Policy† AbstractCoercion is used by one government (the “sender”) to influence the trade practices of another (the “target”). We build a two-country trade model in which coercion can be exercised unilaterally or channeled through a “weak” international organization without enforcement powers. We show that unilateral coercion may be ineffective because signaling incentives lead the sender to demand a concession so substantial to make it unacceptable to the target. If the sender can instead commit to the international organization’s dispute settlement mechanism, then compliance is more likely because the latter places a cap on the sender’s incentives to signal its resolve. (JEL D74, D82, F12, F53) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

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Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20170085
Publisher site
See Article on Publisher Site

Abstract

AbstractCoercion is used by one government (the “sender”) to influence the trade practices of another (the “target”). We build a two-country trade model in which coercion can be exercised unilaterally or channeled through a “weak” international organization without enforcement powers. We show that unilateral coercion may be ineffective because signaling incentives lead the sender to demand a concession so substantial to make it unacceptable to the target. If the sender can instead commit to the international organization’s dispute settlement mechanism, then compliance is more likely because the latter places a cap on the sender’s incentives to signal its resolve. (JEL D74, D82, F12, F53)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Aug 1, 2019

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