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Heterogeneous information and trade policy

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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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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1296.

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Date of creation: Nov 2008
Date of revision: Dec 2011
Handle: RePEc:upf:upfgen:1296

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Web page: http://www.econ.upf.edu/

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

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Cited by:
  1. 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.
  2. Giacomo Ponzetto & Ugo Troiano, 2014. "Social Capital, Government Expenditures, and Growth," Working Papers 612, Barcelona Graduate School of Economics.
  3. 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.
  4. Alessandra Bonfiglioli & Gino Gancia, 2013. "Uncertainty, Electoral Incentives and Political Myopia," Economic Journal, Royal Economic Society, vol. 0, pages 373-400, 05.
  5. 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.
  6. Federico Boffa & Amedeo Piolatto & Giacomo A. M. Ponzetto, 2011. "Political centralization and government accountability," Economics Working Papers 1335, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2014.
  7. 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.

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