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The Theory of Raising Rivals' Costs and Evidence from the International Labour Organisation

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  • Bernhard Boockmann
  • Roland Vaubel

Abstract

The strategy of raising rivals' costs may be adopted by firms in a market, a cartel or interest group or by political majorities in a federal state or international organisation. We provide a first survey and formal exposition of the theory and present examples for each of these applications. In an international cross-section analysis using unpublished data for the period 1980-98, we explain roll-call voting of government representatives in ILO committees drafting international labour standards. Using four different indices of regulation and country samples, we find that governments vote for tighter standards if labour regulation is high in their own country. Our evidence rejects the hypothesis of Brown, Deardorff and Stern that countries exporting low-skill labour-intensive products vote for ILO standards in order to restrict their own supply and increase their terms of trade. As expected, left-party governments vote more in line with labour unions than other governments do. Domestic regulation has a considerably larger effect on voting if the convention in question would raise labour costs in ILO member states. This indicates that highly regulated countries try to raise others' costs. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Bernhard Boockmann & Roland Vaubel, 2009. "The Theory of Raising Rivals' Costs and Evidence from the International Labour Organisation," The World Economy, Wiley Blackwell, vol. 32(6), pages 862-887, June.
  • Handle: RePEc:bla:worlde:v:32:y:2009:i:6:p:862-887
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    Cited by:

    1. Roland Vaubel, 2008. "The political economy of labor market regulation by the European Union," The Review of International Organizations, Springer, vol. 3(4), pages 435-465, December.
    2. Roland Vaubel, 2006. "Principal-agent problems in international organizations," The Review of International Organizations, Springer, vol. 1(2), pages 125-138, June.
    3. Ohr Renate, 2015. "Europäische Integration am Wendepunkt? Zum möglichen Austritt Großbritanniens aus der EU / European integration at a turning point? Consequences of a British exit for the EU," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 99-114, January.

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