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Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination

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  • Devashish Mitra

Abstract

This paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions. Under certain conditions, free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare. Moreover, greater inequality in asset distribution results in a greater number of lobbies and, in most cases, more protection for each of these lobbies. Furthermore, industries with higher levels of capital stock, fewer capitalists, more inelastic demand, and smaller geographical dispersion are the ones that get organized.

Suggested Citation

  • Devashish Mitra, 1999. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," American Economic Review, American Economic Association, vol. 89(5), pages 1116-1134, December.
    • Handle: RePEc:aea:aecrev:v:89:y:1999:i:5:p:1116-1134
    Note: DOI: 10.1257/aer.89.5.1116
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    References listed on IDEAS

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    1. Helpman, E., 1995. "Politics and Trade Policy," Papers 30-95, Tel Aviv - the Sackler Institute of Economic Studies.
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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