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Heterogeneous Information and Trade Policy

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  • Giacomo Ponzetto

Abstract

Protectionism enjoys surprising popular support, in spite of deadweight losses. At the same time, trade barriers appear to decline with public information about protection. This paper develops an electoral model with heterogeneously informed voters which explains both facts and predicts the pattern of trade policy across industries. In the model, each agent endogenously acquires more information about his sector of employment. As a result, voters support protectionism, because they learn more about the trade barriers that help them as producers than those that hurt them as consumers. In equilibrium, asymmetric information induces a universal protectionist bias. The structure of protection is Pareto inefficient, in contrast to existing models. The model predicts a Dracula effect: trade policy for a sector is less protectionist when there is more public information about it. Using a measure of newspaper coverage across industries, I …find that cross-sector evidence from the United States bears out my theoretical predictions.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 596.

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Date of creation: Dec 2011
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Handle: RePEc:bge:wpaper:596

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Keywords: Protectionism; Voters; Imperfect information; Media coverage; Dracula effect; Pareto inefficiency;

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Cited by:
  1. Federico Boffa & Giacomo A.M. Ponzetto & Amedeo Piolatto, 2013. "Centralization and accountability: Theory and evidence from the Clear Air Act," Working Papers. Serie AD 2013-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Giacomo A. M. Ponzetto & Ugo Troiano, 2012. "Social capital, government expenditures, and growth," Economics Working Papers 1307, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2014.
  3. Edward L. Glaeser & Giacomo A. M. Ponzetto, 2012. "Shrouded Costs of Government: The Political Economy of State and Local Public Pensions," NBER Chapters, in: Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century National Bureau of Economic Research, Inc.
  4. Federico Boffa & Amedeo Piolatto & Giacomo Ponzetto, 2014. "Political Centralization and Government Accountability," Working Papers 656, Barcelona Graduate School of Economics.
  5. Alessandra Bonfiglioli & Gino Gancia, 2012. "Uncertainty, Electoral Incentives and Political Myopia," UFAE and IAE Working Papers 915.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. Edward L. Glaeser & Giacomo Ponzetto, 2013. "Shrouded Costs of Government: Political Economy of State and Local Public Pensions Data," Working Papers 660, Barcelona Graduate School of Economics.
  7. Graziano Abrate & Federico Boffa & Fabrizio Erbetta & Davide Vannoni, 2013. "Corruption, Accountability and Efficiency. An Application to Municipal Solid Waste Services," Carlo Alberto Notebooks 316, Collegio Carlo Alberto.

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