Auctioning countermeasures in the WTO

We offer a first formal analysis of auctioning retaliation rights within the WTO. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. If the violating country is prevented from bidding to retire the right of retaliation against it, then the possibility of “auction failure” arises, whereby no bids are made despite positive valuation by bidders. If the violating country is instead permitted to bid, then auction failure is precluded, and indeed the right of retaliation is always retired. We evaluate these different auction formats from normative (revenue, compliance, efficiency) standpoints.