Section 3 discusses research to understand the design of trade agreements, with a particular focus on the role of transaction costs. In particular, I will focus on two different types of transaction costs: friction and friction. I will argue that taking these transaction costs into account is essential to understand the development of material and political rules (such as customs ceilings, non-discrimination rules, etc.), enforcement rules (sanctions/retaliation) and dispute resolution procedures. Even in the absence of the constraints imposed by the most favoured nation and national treatment clauses, it is sometimes easier to obtain general multilateral agreements than separate bilateral agreements. In many cases, the potential loss resulting from a concession to a country is almost as great as that which would result from a similar concession to many countries. The benefits to the most efficient producers from global tariff reductions are significant enough to warrant substantial concessions. Since the implementation of the General Agreement on Tariffs and Trade (GATT, 1948) and its successor, the World Trade Organization (WTO, 1995), global tariffs have declined considerably and world trade has increased. The WTO contains provisions on reciprocity, the status of the most favoured nation and the domestic treatment of non-tariff restrictions. She has been involved in the architecture of the most comprehensive and important multilateral trade agreements of modern times. The North American Free Trade Agreement (1993) and the European Free Trade Association (1995) are examples of these trade agreements and their representative institutions. The starting point of this survey is the two chapters on trade agreements in the previous volume of the International Economics Manual (1995), robert Staiger`s chapter on international trade policy rules and institutions and Richard Baldwin and Anthony Venables” “Regional Economic Integration.” I will focus, in most cases, on the progress of the literature on trade agreements after 1995; I refer the reader to the previous volume of this textbook of literature before 1995. Bagwell et al. (2007) compare this basic auction to an expanded auction where the home government can also retire the right to retaliation.
Since the Government of the Clean Kingdom pays the full cost of reducing the world price of its exports, while each foreign government enjoys only part of the advantage, Bagwell et al.