Wednesday, December 14, 2011

Bechtel & Sattler: What is Litigation in the World Trade Organization Worth?

Michael M. Bechtel (ETH Zurich - Center for Comparative and International Studies) & Thomas Sattler (LSE - International Relations) have posted What is Litigation in the World Trade Organization Worth? Here's the abstract:
Conventional wisdom holds that the creation of international, court-like institutions helps countries to peacefully settle trade conflicts, thereby enhancing overall welfare. Others, however, point out that these institutions remain ultimately ineffective, because they merely reflect the distribution of power in the anarchic international system. We explore how litigation in the WTO affects bilateral trade between countries involved in a trade dispute. We find that sectoral exports from complainant countries to the defendant increase by about $9.5 billion in the three years after a panel ruling. However, countries that have proactively filed a complaint and carried the main costs of litigation do not systematically gain more than less active third parties that merely joined an existing WTO dispute and carried smaller litigation costs. We conclude that international judicial institutions create incentives for freeriding, but at the same time may lead to a less power-based distribution of the gains from trade.