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Policy Linkage and Uncertainty in International Agreements
Author(s) -
Ederington Josh
Publication year - 2003
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/cbg010
Subject(s) - cheating , linkage (software) , punishment (psychology) , economics , microeconomics , contrast (vision) , game theory , computer science , social psychology , psychology , biochemistry , chemistry , gene , artificial intelligence
This article uses noncooperative game theory to analyze the potential benefits of linking trade agreements to agreements covering domestic policies in a world of uncertainty. I show that nonlinkage is more desirable if there is a positive probability that a country will erroneously believe that its trading partner is cheating on the agreement (triggering an unnecessary punishment phase). In contrast, linkage is more desirable if there is a positive probability that cheating will go unnoticed.