Publication Type

Journal Article

Version

submittedVersion

Publication Date

3-2016

Abstract

The WTO's strict treatment of domestic subsidies has not been well received in the existing literature. An essential reason is that the consequent restriction on domestic efficiency is hardly compatible with the existing theory of government intervention under which the primary objective of using domestic subsidies, domestic efficiency, is not sacrificed for another objective. We develop a trade-agreement model in which the magnitude of a legitimate domestic subsidy with which to address a production externality is private information. We find that an optimal agreement substantially restricts domestic efficiency for the international objective of expanding market access.

Keywords

Optimal Agreement, Restriction on Domestic Efficiency, Market-Access Preservation Rule, GATT/WTO Subsidy Rules

Discipline

International Economics

Research Areas

International Economics

Publication

Journal of International Economics

Volume

99

First Page

138

Last Page

155

ISSN

0022-1996

Identifier

10.1016/j.jinteco.2016.01.003

Publisher

Elsevier

Embargo Period

6-24-2016

Additional URL

https://doi.org/doi:10.1016/j.jinteco.2016.01.003

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