Does WTO dispute settlement enforce or inform?

Whereas some researchers emphasize how WTO dispute settlement reduces complexity and clarify legislation, others argue that dispute rulings promote cooperation by providing an enforcement mechanism. We identify empirical implications from these distinct arguments and test these on WTO disputes from 1995 to 2006. Our analytical approach combines a three step coding of dispute escalation with a strategic bargaining model and statistical backwards induction to account for forward-looking behavior of governments. We find strong support for the argument that WTO dispute settlement primarily serves as an enforcement device. We find much less support for dispute settlement reducing complexity and clarifying trade law. This suggests that the role of WTO dispute settlement in generating information on acceptable trade policy standards is less relevant than proponents of the complexity argument tend to assume.