Under a customs union, countries can exchange preferential market access by coordinating external tariffs to shift profits from excluded countries. I show that the exporting rents resulting from this coordination can offset trade diversion losses produced by the union, even if its members are...

In a bilateral relationship where the supplier of an intermediate good has to make a relationship-specific investment but cannot write or enforce a complete contract, the standard hold-up problem of underinvestment arises. We show that this problem is aggravated when the buyer is located in a...

Weak enforcement of international contracts substantially reduces international trade. We develop a model where agents build reputations to overcome the difficulties that this institutional failure causes in a context of incomplete information. The model describes the interplay between...

I evaluate in this paper the impact of free trade areas (FTAs) on the world trading system. I use an oligopolistic-political-economy model where the external tariffs of FTA members, as well as the decision to form FTAs, are endogenously determined. In this context, I show that FTAs are primarily...