Renegotiation-Proof Tariff Agreements

The institutional features of the World Trade Organization motivate the use of renegotiation-proofness as an equilibrium concept in repeated tariff-setting games. This paper shows the existence of a renegotiation-proof equilibrium that reduces tariffs below the noncooperative level. It is found that the one-shot Nash equilibrium cannot be used as a punishment to support such treaties. Punishments are either Pareto-efficient or one country barely accepts them. If the punishing country is hurt by the punishment then punishments will be as short as possible. If the agreement tariff levels are not Pareto-efficient then one country barely goes along with the agreement.