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Heterogeneous Information and Trade Policy

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  • Giacomo A. M. Ponzetto

    (CREI - Universitat Pompeu Fabra)

Abstract

Protectionism is a costly mechanism to redistribute from the average citizen to special-interest groups, yet protectionist political platforms have a surprising popular appeal. At the same time, I present evidence of a Dracula effect: protection declines when public information is greater. I explain both facts through an electoral model with heterogeneously informed voters. In a setting of probabilistic voting, I show that the equilibrium tariff for each sector caters to the preferences of agents more likely to be informed of policy proposals for the sector itself. I highlight two sources of endogenous information asymmetry. First, I assume that coworkers share industry-specific knowledge. Second, I allow costly information acquisition and assume that producers must invest in production capacity before the election. Through both channels I find that in every industry producers are more informed than consumers, inducing an overall protectionist bias. Costly learning also explains why politicians offer redistribution through distortive tariffs: transfers to producers are noticed by their beneficiaries only if they distort prices and investments. An empirical analysis of non-tariff barriers and newspaper coverage across U.S. industries supports the predictions of the model.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 189.

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Date of creation: 2011
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Handle: RePEc:red:sed011:189

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  1. Matschke, Xenia N. & Sherlund, Shane M, 2003. "Do Labor Issues Matter In The Determination Of U.S. Trade Policy? An Empirical Reevaluation," Santa Cruz Center for International Economics, Working Paper Series qt82k4x4f5, Center for International Economics, UC Santa Cruz.
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Cited by:
  1. Boffa, Federico & Piolatto, Amedeo & Ponzetto, Giacomo AM, 2013. "Centralization and Accountability: Theory and Evidence from the Clean Air Act," CEPR Discussion Papers 9514, C.E.P.R. Discussion Papers.
  2. 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.
  3. Edward L. Glaeser & Giacomo A. M. Ponzetto, 2012. "Shrouded costs of government: The political economy of state and local public pensions," Economics Working Papers 1336, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2013.
  4. Graziano Abrate & Federico Boffa & Fabrizio Erbetta & Davide Vannoni, 2013. "Corruption, Accountability and Efficiency. An Application to Municipal Solid Waste Services," Working papers 022, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
  5. Ugo Troiano & Giacomo Ponzetto, 2012. "Social Capital, Government Expenditures, and Growth," 2012 Meeting Papers 1048, Society for Economic Dynamics.
  6. 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).
  7. Federico Boffa & Amedeo Piolatto & Giacomo Ponzetto, 2014. "Political Centralization and Government Accountability," Working Papers 656, Barcelona Graduate School of Economics.

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