This paper develops a simple small-country model to explain why the World Trade Organization (WTO) prohibits export subsidies but allows import tariffs. Governments choose protection rates (import tariffs/export subsidies) to maximize a weighted sum of social welfare and lobbying contributions....

This paper develops a simple small-country model to explain why the WTO prohibits export subsidies but allows import tariffs. Governments choose protection rates import tariffs/export subsidies) to maximize a weighted sum of social welfare and lobbying contributions. While transportation costs...

We study revenue-maximizing mechanisms for selling retaliation in the WTO. The most interesting feature of this mechanism-design problem is the presence of positive externalities among buyers. We observe that the revenue-maximizing selling mechanisms have the following properties: i) The buyer...