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Efficient choice among domestic and trade policies in the Grossman-Helpman Interest-Group Model

Author

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  • Schleich, Joachim
  • Orden, David

Abstract

This paper generalizes the recent political economy model of Helpman and Grossman in which contributions by producer lobbies and government decisions about trade policies are modeled as a common agency game. We allow the government to choose among domestic as well as trade interventions. When production and trade policies are available, the equilibrium production policies serve the lobbies while the trade policies reflect the country's international market power. When consumption and trade policies are available, tariffs and export subsidies are applied in a small-country model to serve the special interests, and the domestic policies are selected to restore consumer prices to world levels. In a large-country model, the optimal consumption and trade policies reflect terms-of trade as well as special-interest considerations. The political equilibrium policies of Grossman and Helpman are special cases where the government has only trade instruments at hand.

Suggested Citation

  • Schleich, Joachim & Orden, David, 1996. "Efficient choice among domestic and trade policies in the Grossman-Helpman Interest-Group Model," Bulletins 7458, University of Minnesota, Economic Development Center.
  • Handle: RePEc:ags:umedbu:7458
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    File URL: http://purl.umn.edu/7458
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    References listed on IDEAS

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    1. Dixit, Avinash K & Grossman, Gene & Helpman, Elhanan, 1996. "Common Agency and Coordination: General Theory and Application to Tax Policy," CEPR Discussion Papers 1436, C.E.P.R. Discussion Papers.
    2. Grossman, Gene M & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 675-708, August.
    3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, pages 833-850.
    4. Hillman, Arye L & Ursprung, Heinrich W, 1988. "Domestic Politics, Foreign Interests, and International Trade Policy," American Economic Review, American Economic Association, vol. 78(4), pages 719-745, September.
    5. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
    6. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters,in: Import Competition and Response, pages 223-244 National Bureau of Economic Research, Inc.
    7. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
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    Cited by:

    1. Li, Na & Ker, Alan P., 2011. "Trade Agreements, Political Economy and Endogenously Incomplete Contracts," Working Papers 116850, Canadian Agricultural Trade Policy Research Network.

    More about this item

    Keywords

    Political economy; trade policies; domestic subsidies and taxes; efficient policies; common agency; International Relations/Trade; F11; F13;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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