the role of multilateral institutions in international trade cooperation the world trade organization wfo lacks the power to directly enforce agreements it is therefore important to understand what role the wto can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements this paper examines two potential benefits of a multilateral trade institution first verifying violations of the agreements and informing third parties thus facilitating multilateral reputation mechanisms second promoting multilateral trade negotiations rather than a web of bilateral negotiations the model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships

backward stealing and forward manipulation in the wto abstract motivated by the structure of wto negotiations we analyze a bargaining environment in which negotiations proceed bilaterally and sequentially under the most favored nation mfn principle we identify backward stealing and forward manipulation problems that arise when governments bargain under the mfn principle in a sequential fashion we show that these problems impede governments from achieving the multilateral efficiency frontier unless further rules of negotiation are imposed we identify the wto nullification or impairment and renegotiation provisions and its reciprocity norm as rules that are capable of providing solutions to these problems in this way we suggest that wto rules can facilitate the negotiation of efficient multilateral trade agreements in a world in which the addition of new and economically significant countries to the world trading system is an ongoing process

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

the value of trade agreements in the presence of political pressures an argument often heard in favor of trade agreements is that by committing to free trade a government can credibly distance itself from domestic lobbies but several existing models of endogenous protection suggest that governments have no interest in foreclosing interest group pressures since governments derive rents from the political process we develop a small country model in which factors are sector specific in the short run but mobile in the long run we show that in this setting a government may be worse off in the political equilibrium than under commitment to free trade and hence it may value a trade agreement

aspiring for change a theory of middle class activism we propose a regime change model in which people are uncertain about both the quality of a specific regime and governance in general the poor perceive the current regime as bad rationally infer that all govern ments are bad and therefore believe mass movements are futile the mid dle class are more sanguine about the prospect of good government and believe that collective action is effective because they expect many fellow citizens to share the same view this coordination game with incomplete information does not admit monotone equilibrium but exhibits multiple interval equilibria where middle class people are more likely to attack the regime

bilateral graduation the impact of epas on ldc trade space abstract as trade is prominently mainstreamed into development policies the ongoing economic partnership agreement epa negotiations between the eu and the african carribbean and pacific acp countries are a turning point in least developed countries ldc engagement with the international trading system the process covers most un designated ldcs and is the first time they feature in the first row of international trade talks we explore how the space ldcs occupy in the trade regime will be affected by epas the analysis suggests that they move ldcs towards effective graduation from special and differential treatment while innovating on policy tools to address underdevelopment

how good are standard debt contracts stochastic versus nonstochastic monitoring in a costly state verification environment the authors investigate ex ante efficient contracts in an environment in which implementation is costless in this environment standard debt contracts will typically not be optimal optimal contracts may involve defaults even in states in which the borrower is fully able to repay the authors then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts when model parameters are calibrated to realistic values the welfare loss from exogenously imposing this restriction is extremely small thus if implementation costs are actually nontrivial as seems likely standard debt contracts will be very close to optimal copyright 1994 by university of chicago press

biased perceptions of income distribution and preferences for redistribution evidence from a survey experiment abstract individual perceptions of income distribution play a vital role in political economy and public finance models yet there is little evidence regarding their origins or accuracy this study examines how individuals form these perceptions and explores their potential impact on preferences for redistribution a tailored household survey provides original evidence on systematic biases in individuals evaluations of their own relative position in the income distribution the study discusses one of the mechanisms that may generate such biases based on the extrapolation of information from endogenous reference groups and presents some suggestive evidence that this mechanism has significant explanatory power the impact of these biased perceptions on attitudes toward redistributive policies is studied by means of an experimental design that was incorporated into the survey which provided consistent information on the own ranking within the income distribution to a randomly selected group of respondents the evidence suggests that those who had overestimated their relative position and thought that they were relatively richer than they were tend to demand higher levels of redistribution when informed of their true ranking

theories of poverty traps and anti poverty policies in this paper we provide a conceptual overview of alternative mechanisms leading to poverty traps at the individual level making a distinction between those that are due to external frictions e g market failure and those that are due to behavior under extreme scarcity in the absence of any frictions we develop a common theoretical framework to examine alternative scenarios characterizing conditions under which poverty traps in the sense of multiple stable steady states arise as opposed to possibly conditional convergence to a unique steady state we apply this framework to discuss the relative merits of alternative anti poverty policies such as unconditional and conditional cash transfers and direct interventions aimed at improving market access to the poor or improving public service delivery jel codes d13 d23 o12 o15

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

the gatt in historical perspective the transformation of the general agreement on tariffs and trade gatt into the world trade organization wto on january 1 1995 provides an opportune moment to take stock of the gatt s achievements and shortcomings alongside those of its 50 year old sister international institutions set up at bretton woods it is temptingly easy to attribute the astounding postwar economic expansion particularly when set against the turbulent interwar period when multilateral efforts to contain protectionist pressures failed miserably to the economic policies embodied in the gatt and to the initial stability provided by the bretton woods institutions yet a closer look at precisely what the gatt accomplished in its first decade suggests that trade liberalization under its auspices alone is far from sufficient to explain the postwar economic boom

the politics of foreign direct investment into developing countries increasing fdi through international trade agreements the flow of foreign direct investment into developing countries varies greatly across countries and over time the political factors that affect these flows are not well understood focusing on the relationship between trade and investment we argue that international trade agreements gatt wto and preferential trade agreements ptas provide mechanisms for making commitments to foreign investors about the treatment of their assets thus reassuring investors and increasing investment these international commitments are more credible than domestic policy choices because reneging on them is more costly statistical analyses for 122 developing countries from 1970 to 2000 support this argument developing countries that belong to the wto and participate in more ptas experience greater fdi inflows than otherwise controlling for many factors including domestic policy preferences and taking into account possible endogeneity joining international trade agreements allows developing countries to attract more fdi and thus increase economic growth

dynamic prudential regulation is prompt corrective action optimal the current u s bank capital regulation features prompt corrective action which mandates regulators to intervene in and liquidate banks based on their book value capital ratios to see if prompt corrective action is optimal i build a dynamic model of repeated interactions between a banker and a regulator under hidden choice of risk private information on returns and limited commitment by the banker and costly liquidation i first characterize the optimal incentive feasible allocation i then demonstrate that the optimal allocation is implementable through the combination of a risk based deposit insurance premium and a book value capital regulation with stochastic liquidation

dynamic global games of regime change learning multiplicity and the timing of attacks global games of regime change coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attack it have been used to study crises phenomena such as currency attacks bank runs debt crises and political change we extend the static benchmark examined in the literature by allowing agents to take actions in many periods and to learn about the underlying fundamentals over time we first provide a simple recursive algorithm for the characterization of monotone equilibria we then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time or with changes in fundamentals leads to interesting equilibrium properties first multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark second fundamentals may predict the eventual fate of the regime but not the timing or the number of attacks finally equilibrium dynamics can alternate between phases of tranquility where no attack is possible and phases of distress where a large attack can occur even without changes in fundamentals

are external shocks responsible for the instability of output in low income countries external shocks such as commodity price fluctuations natural disasters and the role of the international economy are often blamed for the poor economic performance of low income countries the author quantifies the impact of these different external shocks using a panel vector autoregression var approach and compares their relative contributions to output volatility in low income countries vis a vis internal factors he finds that external shocks can only explain a small fraction of the output variance of a typical low income country internal factors are the main source of fluctuations from a quantitative perspective the output effect of external shocks is typically small in absolute terms but significant relative to the historic performance of these countries

information manipulation coordination and regime change this article presents a model of information manipulation and political regime change there is a regime that can be overthrown but only if enough citizens participate in an uprising citizens are imperfectly informed about the regime s ability to resist an uprising and the regime can engage in propaganda that taken at face value makes the regime seem stronger than it truly is this coordination game with endogenous information manipulation has a unique equilibrium and the article gives a complete analytic characterization of the equilibrium s comparative statics holding fixed the number of signals available to citizens if the per unit signal precision is sufficiently high then the regime is harder to overthrow in contrast if the number of signals increases so that both total signal precision and the regime s costs of manipulation rise together then the regime is easier to overthrow unless there are strong economies of scale in information control

optimal multiperiod contracts and the gain from enduring relationships under private information informational asymmetries can play a key role in explaining the existence and nature of multiperiod contracts in an illustrative risk sharing model even relatively short two period contracts can be mutually beneficial if there is private information though one period contracts suffice otherwise further contracts which are pareto optimal relative to the environment and the information structure are defined and partially characterized an example illustrates how otherwise inefficient intertemporal tie ins can be used optimally to mitigate incentive problems the obvious borrowing lending schemes are not private information pareto optimal in these period by period actions are not sufficiently constrained discounting affects the form of the optimal contract but none of these qualitative conclusions

rethinking trade preferences how africa can diversify its exports this paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalised trade in manufactures trade preferences may be able to act as a catalyst for manufacturing exports leading to rapid growth in exports and employment to do so preferences need to be designed to be consistent with international trade in fragmented tasks as opposed to complete products and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure recent experience with the african growth and opportunities act shows that in the right conditions sub saharan african countries have had large manufacturing export supply response to trade preferences

repeated insurance relationships in a costly state verification model with an application to deposit insurance abstract we consider the problem of an insurer who enters into a repeated relationship with a set of risk averse agents in the presence of ex post verification costs the insurer wishes to minimize the expected cost of providing these agents a certain expected utility level we characterize the optimal contract between the insurer and the insured agents we then apply the analysis to the provision of deposit insurance our results suggest in a deposit insurance context that it may be optimal to utilize the discount window early on and to make deposit insurance payments only later or not at all

financial intermediation business failures and real business cycles in this paper a general equilibrium business cycle model is construct ed that when subjected to real disturbances mimics observed qualita tive comovements among real output money business failures risk pr emia intermediary loans and prices in contrast monetary disturban ces generate cycles that have several inconsistencies with empirical evidence thus providing support for real business cycle theory at th e expense of monetary theories of the business cycle financial inter mediation arises endogenously in the model and intermediation matters for business cycle behavior a credit supply mechanism acts in tande m with an intertemporal substitution effect in propagating stochastic disturbances copyright 1987 by university of chicago press

economic partnership agreements between sub saharan africa and the eu a development perspective this paper draws on hinkle and schiff 2003 it analyses the planned economic partnership agreements epas between the eu and sub saharan africa ssa from a development perspective it does not take a position on whether ssa should enter into epas with the eu rather it starts from the notion that the process of forming epas is unlikely to be reversed and examines the conditions that will maximise ssa s benefits from the epas if this notion is correct then the analysis presented in the paper applies on the other hand pascal lamy the eu trade commissioner made a proposal at the may 2004 g 90 summit in dakar that might lead to a change in the epa process he proposed that the g 90 a group consisting of acp and non acp ldc countries should not have to make concessions at the wto doha round of multilateral trade negotiations i e he proposed a free round for the g 90 this proposal opens the door to the possibility that the same might apply to the acp countries in the eu acp negotiations and that the epa process might be reversed the paper considers the key issues raised by the planned epas their relationship to the wto s doha round and the eu s everything but arms initiative the changes needed to make the epas internally consistent the domestic reforms in ssa that would need to accompany trade liberalisation in both goods and services and the potential effects of the epas on regional integration in ssa the epas will pose a number of policy challenges for ssa countries including restructuring of indirect tax systems reduction of mfn tariffs liberalisation of service imports on an mfn basis and related regulatory reforms in the services sector and liberalisation of trade in both goods and services within the regional trading blocs in ssa the paper also finds that the epas provide an opportunity to accelerate regional and global trade integration in ssa to realise the potential development benefits of the planned epas two steps are essential first the eu must as it has stated truly treat the epas as instruments of development subordinating its commercial interests in the agreements to the development needs of ssa second the ssa countries need to implement a number of epa related trade policy reforms however the latter is far from certain given the lack of reform momentum in ssa

incentives ceo compensation and shareholder wealth in a dynamic agency model abstract m jensen and k murphy 1990 j polit econ 98 225 264 argue that the observed pay performance sensitivity of ceo compensation is too low to be consistent with formal agency theory this paper uses a dynamic agency model to offer a resolution of the jensen and murphy puzzle we show that the dynamic agency model can predict either a positive or a negative pay performance sensitivity depending on the parameter values of the model and the distribution of the ceos initial expected discounted utilities for a large variety of parameter values and for properly chosen distributions of initial ceo expected discounted utilities our model is capable of generating data where the pay performance sensitivity is significantly positive but very small as in jensen and murphy s data the key to our result is a compensation rigidity that is created endogenously by the optimal dynamic contract journal of economic literatureclassification numbers c63 d82 g30

the wto trade effect this paper reexamines the gatt wto membership efiect on bilateral trade ows using nonparametric methods including pair matching permutation tests and a rosenbaum 2002 sensitivity analysis together these methods provide an estimation framework that is robust to misspeciflcation biases allows general forms of heterogeneous treatment efiects and addresses potential hidden selection biases this is in contrast to most conventional parametric studies on this issue our results suggest large gatt wto trade promoting efiects robust to various restricted matching criteria alternative indicators for gatt wto involvement different matching methodologies non random incidence of positive trade ows and inclusion of multilateral resistance terms

capital market imperfections international credit markets and nonconvergence abstract we consider a two country growth model with international capital markets these markets fund capital investment in both countries and operate subject to a costly state verification csv problem investors in each country require some external finance but also provide internal finance which mitigates the csv problem when two identical except for their initial capital stocks economies are closed they necessarily convergemonotonicallyto the same steady state output level unrestricted international financial tradeprecludesotherwise identical economies from converging and poor countries are necessarily net lenders to rich countries oscillation in real activity and international capital flows can occur journal of economic literatureclassification numbers e00 f00 f34 g14

incentives and aggregate shocks this paper presents an incentive based theory of the dynamics of the distribution of consumption in the presence of aggregate shocks the paper builds on the models concerning the distribution of income or consumption and incentive problems of green 1987 thomas and worrall 1991 phelan and townsend 1991 and atkeson and lucas 1992 by incorporating aggregate production shocks the model allows an examination of the interactions between individual and aggregate consumption series given incomplete insurance further the methodology outlined allows the incorporation of incentive considerations to macroeconomic environments similar to rogerson 1988 and hansen 1985

do we really know that the wto increases trade comment in a recent article in the american economic review andrew k rose 2004 finds that countries belonging to the general agreement on tariffs and trade gatt and its successor the world trade organization wto did not trade more than countries that abstained from membership a vast literature on the gatt and the wto presupposes that these organizations were important but until rose there were few systematic efforts to test the assumption that membership increased trade rose s contribution is striking because he assembles a large dataset performs a myriad of analyses and uncovers scant evidence that the gatt and the wto had any impact rose describes his negative findings as an interesting mystery 112 the solution to this mystery lies in understanding who actually participated in the gatt we show that rose has overlooked a large proportion of countries to which the agreement applied and mistakenly classified them as nonparticipants when in fact they had rights and obligations under the agreement this causes a downward bias in his estimates of the gatt s effect on trade because his gravity regressions

the trade and fiscal impact of eu acp economic partnership agreements on west african countries abstract the european union is currently negotiating free trade agreements called economic partnership agreements epas with african countries as part of the cotonou agreement between the european union and african caribbean and pacific countries the paper empirically assesses the impact of the epas on trade flows and government revenue for 14 west african countries the results indicate that the decline in import duties due to the preferential tariff elimination might be of some cause for concern and that complementary fiscal and economic policies have to be implemented before or at the time the epas come into force

determinants of democracy a panel study of over 100 countries from 1960 to 1995 finds that improvements in the standard of living predict increase in democracy as measured by a subjective indicator of electoral rights the propensity for democracy rises with per capita gdp primary schooling and a smaller gap between male and female primary attainment for a given standard of living democaracy tends to fall with urbnization and with a greater reliance on natrual resources democracy has little relation to country size but rises with the middle class share of income the apparently strong relation of democracy to colonial heritage mostly disappears when the economic variables are held constant similarly the allowance for these economic variables weakens the interplay between democracy and religious affiliation however negative effects from muslim and non religious affiliations remain intact

collective action with uncertain payoffs coordination public signals and punishment dilemmas how can one analyze collective action in protests or revolutions when individuals are uncertain about the relative payoffs of the status quo and revolution we model a calculus of protest of individuals who must either submit to the status quo or support revolt based only on personal information about their payoffs in deciding whether to revolt the citizen must infer both the benefit of successful revolution and the likely actions of other citizens we characterize conditions under which payoff uncertainty overturns conventional wisdom a when a citizen is too willing to revolt he reduces the incentives of others to revolt b less accurate information about the value of revolution can make revolt more likely c public signals from other citizens can reduce the likelihood of revolt d harsher punishment can increase the incidence of punishment and e the incidence of protest can be positively correlated with that of repression

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

do we really know that the wto increases trade reply michael tomz judith l goldstein and doug las rivers 1hereafter tgr2 argue that the general agreement on tariffs and trade gatt and its successor the world trade organization 1wto had a substantial positive effect on trade their paper is a critique of my article do we really know that the wto increases trade which appeared in this review 2004a among other things i used a bilateral gravity model of trade and showed that dummy variables for member ship by either one or two countries in the gatt had only small effects on trade in essence tgr point out that a lot of countries were not formal members of the gatt but still participated in it as colonies or de facto or provisional members tgr argue that if one includes these other types of more informal participation one gets large positive effects for what it s worth i stated in my original article that de jure accession to the gatt need not be the same as de facto accession but i wasn t able to quantify it and encouraged others to do so tgr did precisely that at the cost of much tedious archival work i applaud them for it and will certainly not question its accuracy i also like their methodological strategy which is to follow my empirical framework closely and rely mostly on simply adding informal partici pation to formal gatt membership tgr cite my work selectively but extensively it s a clean and effective way to proceed i like their paper and have learned a lot by reading it and thinking about the issues it raised all who are interested in the topic of the impact of the multilateral system on trade should take it seriously still i have concerns about the mean ing plausibility and robustness of their results do we really know that the wto increases trade reply

on the emergence of an mfn club equal treatment in an unequal world motivated by gatt we endogenize the formation of a club whose members have to abide by the mfn principle of non discrimination the underlying model is that of oligopolistic intraindustry trade while an mfn club does not alter average tariff levels across countries it increases aggregate world welfare makes non members worse off and can immiserize its high cost members these results imply that i core wto rules such as mfn are valuable even if multilateral negotiations deliver limited trade liberalization and ii the distributional effects of mfn maybe one reason why developing countries have been granted special and differential treatment at the wto jel classification f13 f10 f15

making eu trade agreements work the role of rules of origin a key element of the eu s free trade and preferential trade agreements is the extent to which they deliver improved market access and so contribute to the eu s foreign policy objectives towards developing countries and neighbouring countries in europe including the countries of the balkans previous preferential trade schemes have been ineffective in delivering improved access to the eu market since only a small proportion of the available preferences have actually been utilised the main reason for this is probably the very restrictive rules of origin that the eu imposes coupled with the costs of proving consistency with these rules if the eu wants the everything but arms agreement and free trade agreements with countries in the balkans to generate substantial improvements in access to the eu market for products from these countries then it will have to reconsider the current rules of origin and implement less restrictive rules backed up by a careful safeguards policy

information constrained insurance the revelation principle extended abstract private information induced incentive constraints can cause allocations to diverge from full information optimal allocations often in the direction of limited insurance but can bring unanticipated anomalies related plausible contract exclusion restrictions can be damaging in welfare terms more generally private information optimal allocations can be sensitive to the information structure suggesting that the latter be specified with an eye toward realism as well as tractability in an effort to make tractability less of a constraint the paper shows how two apparently difficult information structures a costly state verification environment and a multiperiod multilateral private information environment can be handled theoretically by revelation principle methods the paper also shows how solutions can be generated numerically

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

crises and prices information aggregation multiplicity and volatility crises are volatile times when endogenous sources of information are closely monitored we study the role of information in crises by introducing a financial market in a coordination game with imperfect information the asset price aggregates dispersed private information acting as a public noisy signal in contrast to the case with exogenous information our main result is that uniqueness may not obtain as a perturbation from perfect information multiplicity is ensured with small noise in addition we show that a multiplicity may emerge in the financial price itself b less noise may contribute toward nonfundamental volatility even when the equilibrium is unique and c similar results obtain for a model where individuals observe one another s actions highlighting the importance of endogenous information more generally