Negotiated Trade Restrictions with Private Political Pressure
AbstractIn this paper we consider a home government with political pressure to restrict trade, at the expense of foreigners. The foreign country is compensated with an income transfer, which can be thought of as a portion of the tariff revenues or quota rents. In this setting the two countries should negotiate over the level of tariff and transfer of rents, depending on the level of political pressure at home. However, if this pressure cannot be directly observed abroad, then the home country may have an incentive to claim arbitrarily high political need and seek corresponding high trade barriers . We resolve this problem by determining incentive compatible trade policies, in which the home government has no incentive to overstate (or understate) the political pressure for protection.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2374.
Date of creation: Aug 1987
Date of revision:
Publication status: published as Quarterly Journal of Economics, November 1991, 1287-1307
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Other versions of this item:
- Feenstra, Robert C & Lewis, Tracy R, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1287-307, November.
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- Roger B. Myerson, 1977.
"Incentive Compatability and the Bargaining Problem,"
284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Prusa, Thomas J., 1990. "An incentive compatible approach to the transfer pricing problem," Journal of International Economics, Elsevier, vol. 28(1-2), pages 155-172, February.
- Young, Leslie & Magee, Stephen P, 1986. "Endogenous Protection, Factor Returns and Resource Allocation," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 407-19, July.
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