Vice Squad
Thursday, August 23, 2007
US-Antigua WTO Dispute in the Times

Dani Rodrik points us to an article in today's New York Times on the WTO case between Antigua and Barbuda and the United States. One point that the article does not make clear -- indeed, it sort of suggests the opposite -- is that for the most part, the US won the case. But it does note the stonewalling tactics of the US on that portion of the dispute, primarily concerning internet betting on horse races, in which Antigua prevailed.

Existing domestic vice controls, for all of their faults, represent a sort of evolved equilibrium that in part tries to deal with the social costs of vice. Allowing these controls to be trumped by trade treaties is dangerous, as Vice Squad continues to proclaim. Undoubtedly it would be possible to imagine a world in which a nation's chosen approaches towards vice could be made consistent with trade non-discrimination principles. But allowing those principles to overturn the existing equilibrium, before the first-best system of rules is worked out, puts a country at risk of a difficult transition that might involve much higher social costs of vice. And this dynamic in turn will put trade openness at risk. Dani seems to agree:
To me, this is another example of how existing WTO practices are leading to the narrowing of policy space to the detriment of legitimacy (and economic logic). When the system serves to enforce new restrictions on domestic policy autonomy that would be wildly unpopular at home, it is time to rethink the system.
Dani couches his reaction by invoking the "residual rights of control" approach to ownership. This is not an approach I have ever found to be particularly compelling, though I imagine that I am missing something obvious. Imagine that there is an asset over which there are two payoff-relevant dimensions of use, say, intensity and duration. We write a contract that says that I get to choose intensity and you get to choose everything else. Then by the "residual rights" approach, you are the owner. Now imagine the (equivalent, by stipulation) contract that gives you the right to choose duration, and I can choose everything else; handy dandy, I'm the owner?

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