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Endogeneous Protection, Factor Returns and Resource Allocation

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  • Leslie Young
  • Stephen P. Magee

Abstract

We consider a Heckscher-Ohlin-Samuelson trade model with two lobbies, representing the interests of factor owners, and two political parties. The lobbies contribute resources to politics, equating their returns to political and economic activity at the margin, while the parties maximize their probability of election, trading off general voter dissatisfaction with protection against the electioneering resources that favorable policies attract from the lobbies. The equilibrium level of protection of a factor and its expected rate of return increase with its relative endowment. If this relative endowment is high (low) then the factor will be better (worse) off than under free trade but at intermediate factor endowment ratios, both factors will be worse off. Under parameter changes making lobbies more sensitive to the commodity price, the lobbies contribute more resources to politics and can both be worse off even though the parties are proposing lower trade distortions.

Suggested Citation

  • Leslie Young & Stephen P. Magee, 1986. "Endogeneous Protection, Factor Returns and Resource Allocation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 407-419.
    • Handle: RePEc:oup:restud:v:53:y:1986:i:3:p:407-419.
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    File URL: http://hdl.handle.net/10.2307/2297636
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    Cited by:

    1. Gould, David M. & Woodbridge, Graeme L., 1998. "The political economy of retaliation, liberalization and trade wars," European Journal of Political Economy, Elsevier, vol. 14(1), pages 115-137, February.
    2. Yu-Fu Chen & I-Hui Cheng, 2003. "Lobbying for Protection under Uncertainty: A Real Option Approach," Dundee Discussion Papers in Economics 155, Economic Studies, University of Dundee.
    3. Schleich, Joachim, 1999. "Environmental quality with endogenous domestic and trade policies1," European Journal of Political Economy, Elsevier, vol. 15(1), pages 53-71, March.
    4. Narayanan, Badri G. & Hertel, Thomas W. & Horridge, J. Mark, 2010. "Disaggregated data and trade policy analysis: The value of linking partial and general equilibrium models," Economic Modelling, Elsevier, vol. 27(3), pages 755-766, May.
    5. repec:elg:eechap:15325_12 is not listed on IDEAS
    6. Seiichi Katayama & Heinrich Ursprung, 2000. "Commercial Culture, Political Culture and the Political Economy of Trade Policy: The Case of Japan," CESifo Working Paper Series 312, CESifo.
    7. Jay S. Coggins, 1995. "Rent Dissipation And The Social Cost Of Price Policy," Economics and Politics, Wiley Blackwell, vol. 7(2), pages 147-166, July.
    8. Jonathan Brooks, 1996. "Agricultural Policies In Oecd Countries: What Can We Learn From Political Economy Models?," Journal of Agricultural Economics, Wiley Blackwell, vol. 47(1‐4), pages 366-389, January.
    9. Kim, JunYun & Magee, Stephen & Lee, Hongshik, 2023. "Capitalization of the economy and labor return: How does lobbying affect resource allocation?," Economic Modelling, Elsevier, vol. 120(C).
    10. Michaelis, Peter, 1994. "Regulate us, please!: On strategic lobbying in Cournot-nash oligopoly," Kiel Working Papers 626, Kiel Institute for the World Economy (IfW Kiel).
    11. Narayanan, Badri & Thomas Hertel & Mark Horridge, 2010. "Linking Partial and General Equilibrium Models: A GTAP Application Using TASTE," GTAP Technical Papers 3192, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    12. Roe, T.R., 1992. "Structural Adjustment within Developing Countries," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 28.
    13. Chen, Kai-Lih & Graham-Tomasi, Ted & Roe, Terry, 1993. "Political Economy and Pollution Regulation: Instrument Choice in a Lobbying Economy," Staff Paper Series 201174, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    14. Coggins, Jay S., 1994. "Implementing Agricultural Policy Virtually: The Case of Set-Aside," Staff Papers 200579, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    15. Rauscher, Michael, 2001. "International trade, foreign investment, and the environment," Thuenen-Series of Applied Economic Theory 29, University of Rostock, Institute of Economics.
    16. Robert C. Feenstra & Tracy R. Lewis, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1287-1307.
    17. Katayama, Seiichi & Ursprung, Heinrich W., 2004. "Commercial culture, political culture and economic policy polarization: the case of Japan," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 351-375, July.
    18. Sarbajit Chaudhuri & Krishnendu Ghosh Dastidar & Sushobhan Mahata, 2022. "Cronyism and corruption in India: A game theoretic analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2607-2618, September.
    19. David M. Gould & Graeme L. Woodbridge, 1995. "Building trade barriers and knocking them down: the political economy of unilateral trade liberalizations," Working Papers 9505, Federal Reserve Bank of Dallas.
    20. Coggins, Jay S., 1992. "Rent Dissipation and the Social Cost of Price Policy," Staff Papers 200551, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    21. Coggins, Jay S., 1992. "Rent Dissipation And The Social Cost Of Price Policy," 1992 Annual Meeting, August 9-12, Baltimore, Maryland 271378, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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