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Dispute settlement as rule clarification or enforcement?: evidence from the World Trade Organization

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The existing international relations literature is characterized by two perspectives on dispute settlement. One perspective views dispute settlement as an enforcement instrument in settings characterized by incentives to violate international law, domestic interest group pressure, and power politics. The other perspective views dispute settlement as a complexity reducing and rule clarification device in settings where international contracts are incomplete. We derive two empirical implications from these perspectives for dispute settlement in the World Trade Organization (WTO) to illuminate the driving forces of dispute escalation and conflict resolution. We test these implications on WTO disputes from 1995 to 2006. To that end we use a novel testing strategy that combines a three step coding of dispute escalation with a strategic bargaining model and statistical backwards induction to account for forward looking behavior of governments. The main implication of our results is that the second perspective, which views dispute settlement primarily as a complexity reducing and rule clarification device, is probably too optimistic, and that the WTO's ability to settle disputes is significantly circumscribed by domestic economic interests.

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en

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http://eprints.lse.ac.uk/43235/

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