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DOES LIMITED PUNISHMENT LIMIT THE SCOPE FOR CROSS RETALIATION?
Author(s) -
Chisik Richard,
Onder Harun
Publication year - 2017
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 - 10.1111/ecin.12431
Subject(s) - punishment (psychology) , economics , incentive , limit (mathematics) , scope (computer science) , law and economics , microeconomics , computer science , mathematics , psychology , programming language , mathematical analysis , social psychology
This paper analyzes two prominent institutional rules in the international trading system: a limited cross‐retaliation rule characterized by the Understanding on Rules and Procedures Governing the Settlement of Disputes ( DSU ) Article 22.3 and a limited punishment rule characterized by the General Agreement on Tariffs and Trade ( GATT ) Article XXVIII . In general, both rules are designed to limit the countermeasures upon a violation; however, the former rule specifies the limits of composition in retaliation, whereas the latter one designates the limits of retaliation magnitude. We show that, albeit seemingly unrelated, the limited cross‐retaliation rule complements the limited punishment rule in permitting greater trade liberalization. Specifically, we show how the limited cross‐retaliation rule also helps limit the incentives to violate the trade agreement when the limited punishment rule prevails. ( JEL F13, K33, C73)