WTO Settlement of Trade Disputes

Abstract

The settlement of trade disputes between two countries by the World Trade Organization (WTO) is determined by the optimal market shares for both plaintiff and defendant countries. The WTO process for a settlement is quasi-judicial. Given that the process for dispute settlement Is similar to that for the outcome of a chance experiment. I use an analytical framework based on von Neumann-Morgenstern (vNM) utility functions to determine the optimal market shares for both countries In each other's markets. This, In turn, ensures a Pareto optimum. I find that the effects of a retaliatory tariff on the market shares of both countries are dependent upon trade negotiators' attitude toward risk.