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Protection and International Sourcing

  • Emanuel Ornelas
  • John L. Turner

We study the impact of import protection on relationship-specific investments, organizational choice and welfare. We show that a tariff on intermediate inputs can improve social welfare through mitigating hold-up problems. It does so if it discriminates in favor of the investing party, thereby improving its bargaining position. On the other hand, a tariff can prompt inefficient organizational choices if it discriminates in favor of less productive firms or if integration costs are low. Protection distorts organizational choices because tariff revenue, which is external to the firms, drives a wedge between the private and social gains to offshoring and integration.

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File URL: http://cep.lse.ac.uk/pubs/download/dp0900.pdf
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0900.

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Date of creation: Dec 2008
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Handle: RePEc:cep:cepdps:dp0900
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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