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Efficient choice among domestic and trade policies in the Grossman-Helpman Interest-Group Model

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Schleich, Joachim
Orden, David

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Abstract

This paper generalizes the recent political economy model of Helpman and Grossman in which contributions by producer lobbies and government decisions about trade policies are modeled as a common agency game. We allow the government to choose among domestic as well as trade interventions. When production and trade policies are available, the equilibrium production policies serve the lobbies while the trade policies reflect the country's international market power. When consumption and trade policies are available, tariffs and export subsidies are applied in a small-country model to serve the special interests, and the domestic policies are selected to restore consumer prices to world levels. In a large-country model, the optimal consumption and trade policies reflect terms-of trade as well as special-interest considerations. The political equilibrium policies of Grossman and Helpman are special cases where the government has only trade instruments at hand.

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Paper provided by University of Minnesota, Economic Development Center in its series Bulletins with number 7458.

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Date of creation: 1996
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Handle: RePEc:ags:umedbu:7458

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Related research
Keywords: Political economy; trade policies; domestic subsidies and taxes; efficient policies; common agency; International Relations/Trade; F11; F13;

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  1. Dixit, A. & Helpman, E., 1996. "Common Agency and Coordination: General Theory and Application to Tax Policy," Papers 179, Princeton, Woodrow Wilson School - Public and International Affairs.
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  2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  3. Hillman, Arye L & Ursprung, Heinrich W, 1988. "Domestic Politics, Foreign Interests, and International Trade Policy," American Economic Review, American Economic Association, vol. 78(4), pages 719-45, September.
  4. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters, in: Import Competition and Response, pages 223-244 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Grossman, Gene M & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 675-708, August. [Downloadable!] (restricted)
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  6. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February. [Downloadable!] (restricted)
  7. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August. [Downloadable!] (restricted)
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