Learning in the WTO/DDA Negotiations?: An Experimental Study

Abstract

(ProQuest: ... denotes formulae omitted.)I. INTRODUCTIONMultilateral trade negotiations have been taking on increasing importance in the international economy. Currently, more than 160 economic entities take part in negotiations, such as the Doha Development Agenda (hereinafter, DDA). Furthermore, the countries that are not party to the negotiations are also by and large indirectly involved in the negotiations through their trading partners. Thus, almost no country in the world can be free from the results of the negotiations.Despite their importance, multilateral trade negotiations have not been attractive because they usually go through quite a long process from the beginning to the conclusion. A multilateral trade negotiation such as the Uruguay Round (hereinafter, UR) took more than 7 years and the DDA, which is expected to be concluded in the mid 2000s, is still under negotiation. This long process, which consists of many individual decision-making processes and interactive bargaining among countries, used to be interpreted as a delay in the negotiations1. However, it is argued in this paper that it may be a learning endeavor that is a shaping process on understanding the incentive structure by experiencing similar situations on decision-making and interactions between participants in the multilateral trade negotiations.Traditionally, learning has been one of the most studied topics in the behavioral and experimental economics (see Erev and Haruvy, 2011; Frechette, 2009). First, learning in negotiations has been rarely analyzed by empirical analyses because of the difficulties in identifying and quantifying the learning effect from the process and result of the negotiations, where the process is mostly not well informed. Second, learning cannot rely on a rationality assumption, such as individual decision-making and bargaining games. Thus, as an alternative to conventional approaches in economics, this paper analyzes the learning effect observed in the multilateral bargaining game, including a strong player who is a veto player, by use of experimental economic approaches, in order to provide some policy implications for the DDA negotiations.Decomposing the proposing behaviors in the multilateral bargaining games identifies learning in the games.2 The players in the multilateral bargaining game, which consists of at least three players proposing minimal winning coalitions (hereinafter MWCs), allow positive benefits only to those players needed for the MWC coalitions, according to theoretical predictions based on Baron and Ferejohn (1989) and other related literature.This paper argues that the DDA negotiations, in reality, are actually Veto games, which includes a veto player; thus, not all the participants have equal rights in the process of the negotiations, and the inequality between players is (mostly) generically determined. This paper shows learning from simple repetition, which means learning about rules of the games or the expected consequences of games, is observed in the bargaining games among identical players from Control games; however, it finds different types of learning from games with idiosyncratic players, such as Veto games, which dominate learning from simple repetition. In addition, this paper also shows short memory dependency in the Veto games, which is not clearly identified in the Control games with no veto players. Based on the results, it suggests policy implications for dealing with problems in the DDA negotiations.There are some previous studies on bargaining and learning in the experimental economics literature. With respect to bargaining, Frechette, Kagel, and Lehrer (2003), Frechette, Kagel, and Morelli (2005a, 2005b, 2005c) discussed legislative bargaining based on Baron and Ferejohn (1989), demand bargaining based on Morelli (1999), and weighted voting by Gamson (1961).3 Those studies mostly show the qualitative similarity between theory and experiments by showing proposal power, but in their details there are differences on which theory may be silent. …