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Negotiated Trade Restrictions with Private Political Pressure

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Author Info
Robert C. Feenstra
Tracy R. Lewis

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Abstract

In 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2374.

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Date of creation: Aug 1987
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Handle: RePEc:nbr:nberwo:2374

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  1. Robert C. Feenstra & Jagdish N. Bhagwati, 1982. "Tariff Seeking and the Efficient Tariff," NBER Chapters, in: Import Competition and Response, pages 245-262 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January. [Downloadable!] (restricted)
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  3. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December. [Downloadable!] (restricted)
  4. Mayer, Wolfgang & Riezman, Raymond G., 1987. "Endogenous choice of trade policy instruments," Journal of International Economics, Elsevier, vol. 23(3-4), pages 377-381, November. [Downloadable!] (restricted)
  5. Wellisz, Stanislaw & Wilson, John D., 1986. "Lobbying and tariff formation: A deadweight loss consideration," Journal of International Economics, Elsevier, vol. 20(3-4), pages 367-375, May. [Downloadable!] (restricted)
  6. Young, Leslie & Magee, Stephen P, 1986. "Endogenous Protection, Factor Returns and Resource Allocation," Review of Economic Studies, Blackwell Publishing, vol. 53(3), pages 407-19, July. [Downloadable!] (restricted)
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