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Forbearance in Optimal Multilateral Trade Agreements
2011
Social Science Research Network
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I present a theory of optimal multilateral trade agreements with public political shocks. I show that "forbearance" -where one country withholds retaliation when its trading partner receives a shock -is a feature of an optimal agreement. This provides a rationale for countries not acting on retaliatory rights granted under GATT. I show that there is a limit to forbearance allowable in a self-enforcing agreement, which is increasing in the number of countries, the discount factor, and the size
doi:10.2139/ssrn.1958291
fatcat:mxmfbv5glfd3vktj4e6jykr5du