Equity-efficiency tradeoffs in international bargaining

Abstract

This paper analyzes the welfare impact of expanding the negotiation agenda of an international agreement between asymmetric countries (e.g., including specific negotiations over environmental regulations or labor standards in a conventional trade agreement) and demonstrates why such proposed expansions are contentious. A main result is that agenda expansions that provide more bargaining flexibility will increase the efficiency of the agreement but can result in a less equitable agreement that hurts the country that is at a bargaining disadvantage. Similarly, we demonstrate that decreases in bargaining game asymmetry can also make the disadvantaged country worse-off even as it increases global welfare.