| When, in international agreements, countries pursue reciprocal concessions across different issues—such as linking trade concessions to cooperation in environ mental issues—what are the consequences for the level of cooperation in each issue and for welfare? How do such linked agreements affect other agreements with third countries? These are some of the questions we address from the perspective of trade agreements. In all three essays, governments resort to self-enforcing international agreements to solve a prisoner's dilemma over multiple, possibly interdependent, dimensions in a repeated game framework.; In the first two chapters we show that if two policies used to control externalities are independent in the government's objective function then linkage—the ability to use both policies to punish non-compliance in either individual agreement—promotes cooperation in one policy at the expense of the other (e.g. strengthens environmental standards at the expense of higher tariffs). However, if the linked policies are not independent (e.g. a tariff on cars and an emissions tax) and if these policies are supermodular in the governments' objective function then more cooperation in both issues is feasible under linkage than under no-linkage.; The policies in our model satisfy the supermodularity condition only if the non-trade externality has a cross-border spillover and the weight on that externality's cost is sufficiently high. Moreover, when the lobbies in the import competing industry are sufficiently powerful the policies are not supermodular. Thus, our model addresses several prominent issues in the policy debates on linkage in the context of the WTO.; In the last chapter, we analyze the increasing number of regional agreements in which large developed countries offer lower effective trade barriers on the exports of smaller less developed ones, in exchange for explicit cooperation in non-trade issues. Among other things, we show that, even in the absence of trade creation or diversion effects, such regional agreements affect the levels of self-enforcing multilateral tariffs across regional blocks. Moreover, we show under what conditions the current rules regime, which allows linkages in regional agreements, arises as the optimal choice by large countries, even if it leads to higher multilateral tariffs among them. |
