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Protection and International Sourcing

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Author Info
Emanuel Ornelas
John L. Turner

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Abstract

We study the impact of import protection on relationship-specific investments, organizationalchoice and welfare. We show that a tariff on intermediate inputs can improve social welfarethrough mitigating hold-up problems. It does so if it discriminates in favor of the investingparty, thereby improving its bargaining position. On the other hand, a tariff can promptinefficient organizational choices if it discriminates in favor of less productive firms or ifintegration costs are low. Protection distorts organizational choices because tariff revenue,which is external to the firms, drives a wedge between the private and social gains tooffshoring and integration.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0900.

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Date of creation: Dec 2008
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Handle: RePEc:cep:cepdps:dp0900

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Related research
Keywords: International trade; tariffs; hold-up problem; sourcing; organizational form;

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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    Other versions:
  2. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Ornelas, Emanuel & Turner, John L., 2008. "Trade liberalization, outsourcing, and the hold-up problem," Journal of International Economics, Elsevier, vol. 74(1), pages 225-241, January. [Downloadable!] (restricted)
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  6. McLaren, John, 1999. "Supplier relations and the market context: A theory of handshakes," Journal of International Economics, Elsevier, vol. 48(1), pages 121-138, June. [Downloadable!] (restricted)
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  10. Aaron Edlin & Stefan Reichelstein, 1995. "Holdups, Standard Breach Remedies, and Optimal Investment," Berkeley Olin Program in Law & Economics, Working Paper Series 1155, Berkeley Olin Program in Law & Economics. [Downloadable!]
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  11. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier. [Downloadable!] (restricted)
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  14. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February. [Downloadable!] (restricted)
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  15. Kathryn E. Spier & Michael D. Whinston, 1995. "On the Efficiency of Privately Stipulated Damages for Breach of Contract: Entry Barriers, Reliance, and Renegotiation," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 180-202, Summer. [Downloadable!] (restricted)
  16. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 569-600, 05. [Downloadable!] (restricted)
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  17. Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pol Antràs & Robert W. Staiger, 2008. "Offshoring and the Role of Trade Agreements," NBER Working Papers 14285, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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