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WTO as Moral Support
Author(s) -
Furusawa Taiji
Publication year - 2009
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2009.00827.x
Subject(s) - economics , world trade , international economics , international trade , law and economics
International cooperation in trade policies under the auspices of the WTO makes countries “feel” more obliged to uphold agreements. The paper emphasizes the role of the WTO to give moral support: countries incur “psychological costs” when they renege on the agreements that are formally signed under the WTO. Using the concept of Kandori's (2003) “morale equilibrium,” we formalize this idea and show that countries can agree on a cooperative level of the binding tariffs but they occasionally deviate from the agreement, which lowers the morale and invites further deviations in the future.