The Cathedral Rules as the WTO's Remedy

Abstract

Coase’s assumption of zero transaction cost is not realistic in the WTO; it bears substantive amount of transaction costs. Unlike Coase, Calabresi and Melamed, in their article of “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral,” endogenously admit that transaction cost exists and utilize it for the application of a property and liability rule. I would like to apply property rules, liability rules, and inalienability to the WTO; particularly, property and liability rules in the DSU. Effect of deterrence of violations (in case of applying property rules) and compensational rebalancing (in case of applying liability rules) will be discussed. The data analysis demonstrates the dominance of liability rules in the dispute cases from 1995 to 2009. The aim of examining the rules is to maximize joint welfare of the members.