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Heterogeneous Information and Trade Policy

Author

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  • Giacomo A. M. Ponzetto

    (CREI - Universitat Pompeu Fabra)

Abstract

Protectionism is a costly mechanism to redistribute from the average citizen to special-interest groups, yet protectionist political platforms have a surprising popular appeal. At the same time, I present evidence of a Dracula effect: protection declines when public information is greater. I explain both facts through an electoral model with heterogeneously informed voters. In a setting of probabilistic voting, I show that the equilibrium tariff for each sector caters to the preferences of agents more likely to be informed of policy proposals for the sector itself. I highlight two sources of endogenous information asymmetry. First, I assume that coworkers share industry-specific knowledge. Second, I allow costly information acquisition and assume that producers must invest in production capacity before the election. Through both channels I find that in every industry producers are more informed than consumers, inducing an overall protectionist bias. Costly learning also explains why politicians offer redistribution through distortive tariffs: transfers to producers are noticed by their beneficiaries only if they distort prices and investments. An empirical analysis of non-tariff barriers and newspaper coverage across U.S. industries supports the predictions of the model.

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  • Giacomo A. M. Ponzetto, 2011. "Heterogeneous Information and Trade Policy," 2011 Meeting Papers 189, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:189
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    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. Alessandra Bonfiglioli & Gino Gancia, 2015. "Economic Uncertainty and Structural Reforms," Working Papers 847, Barcelona Graduate School of Economics.
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    5. Ugo Troiano & Giacomo Ponzetto, 2012. "Social Capital, Government Expenditures, and Growth," 2012 Meeting Papers 1048, Society for Economic Dynamics.
    6. Glaeser, Edward L. & Ponzetto, Giacomo A.M., 2018. "The political economy of transportation investment," Economics of Transportation, Elsevier, vol. 13(C), pages 4-26.
    7. 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.
    8. Guarini, Giulio & Laureti, Tiziana & Garofalo, Giuseppe, 2020. "Socio-institutional determinants of educational resource efficiency according to the capability approach: An endogenous stochastic frontier analysis," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    9. 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.
    10. Matejka, Filip & Tabellini, Guido, 2015. "Electoral Competition with Rationally Inattentive Voters," CEPR Discussion Papers 10888, C.E.P.R. Discussion Papers.
    11. repec:tiu:tiucen:2012033 is not listed on IDEAS
    12. 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.
    13. 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.

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    More about this item

    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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