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Heterogeneous Information and Trade Policy

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  • Ponzetto, Giacomo AM

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.

Suggested Citation

  • Ponzetto, Giacomo AM, 2011. "Heterogeneous Information and Trade Policy," CEPR Discussion Papers 8726, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8726
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    Cited by:

    1. 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 Jul 2015.
    2. 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.
    3. Glaeser, Edward L. & Ponzetto, Giacomo A.M., 2014. "Shrouded costs of government: The political economy of state and local public pensions," Journal of Public Economics, Elsevier, vol. 116(C), pages 89-105.
    4. Alessandra Bonfiglioli & Gino Gancia, 2015. "Economic Uncertainty and Structural Reforms," Working Papers 847, Barcelona Graduate School of Economics.
    5. repec:dgr:kubcen:2012033 is not listed on IDEAS
    6. Ugo Troiano & Giacomo Ponzetto, 2012. "Social Capital, Government Expenditures, and Growth," 2012 Meeting Papers 1048, Society for Economic Dynamics.
    7. Alessandra Bonfiglioli & Gino Gancia, 2013. "Uncertainty, Electoral Incentives and Political Myopia," Economic Journal, Royal Economic Society, vol. 0, pages 373-400, May.
    8. Giacomo A. M. Ponzetto & Edward L. Glaeser, 2017. "The political economy of transportation investment," Economics Working Papers 1556, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2017.
    9. Conconi, Paola & Facchini, Giovanni & Zanardi, Maurizio, 2014. "Policymakers' horizon and trade reforms: The protectionist effect of elections," Journal of International Economics, Elsevier, vol. 94(1), pages 102-118.
    10. Federico Boffa & Amedeo Piolatto & Giacomo A. M. Ponzetto, 2016. "Political Centralization and Government Accountability," The Quarterly Journal of Economics, Oxford University Press, vol. 131(1), pages 381-422.
    11. Edward L. Glaeser & Giacomo A.M. Ponzetto, 2013. "Shrouded Costs of Government: Political Economy of State and Local Public Pensions Data," Working Papers 660, Barcelona Graduate School of Economics.
    12. repec:eee:ecotra:v:13:y:2018:i:c:p:4-26 is not listed on IDEAS
    13. Matejka, Filip & Tabellini, Guido, 2015. "Electoral Competition with Rationally Inattentive Voters," CEPR Discussion Papers 10888, C.E.P.R. Discussion Papers.
    14. repec:tiu:tiucen:2012033 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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