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Trade Policy Making in a Model of Legislative Bargaining

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  • Levent Celik
  • Bilgehan Karabay
  • John McLaren

Abstract

In democracies, trade policy is the result of interactions among many agents with different agendas. In accordance with this observation, we construct a dynamic model of legislative trade policy-making in the realm of distributive politics. An economy consists of different sectors, each of which is concentrated in one or more electoral districts. Each district is represented by a legislator in the Congress. Legislative process is modeled as a multilateral sequential bargaining game à la Baron and Ferejohn (1989). Some surprising results emerge: bargaining can be welfare-worsening for all participants; legislators may vote for bills that make their constituents worse off; identical industries will receive very different levels of tariff. The results pose a challenge to empirical work, since equilibrium trade policy is a function not only of economic fundamentals but also of political variables at the time of congressional negotiations - some of them random realizations of mixed bargaining strategies.

Suggested Citation

  • Levent Celik & Bilgehan Karabay & John McLaren, 2011. "Trade Policy Making in a Model of Legislative Bargaining," NBER Working Papers 17262, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17262
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    Cited by:

    1. Celik, Levent & Karabay, Bilgehan & McLaren, John, 2020. "Fast-track authority: A hold-up interpretation," Journal of International Economics, Elsevier, vol. 127(C).
    2. T. Renee Bowen, 2015. "Legislated Protection And The World Trade Organization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1349-1384, November.
    3. Levent Celik & Bilgehan Karabay, 2011. "A Note on Equilibrium Uniqueness in the Baron-Ferejohn Model," CERGE-EI Working Papers wp440, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Daryna Grechyna, 2021. "Trade openness and political distortions," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 644-663, November.
    5. Beckman, Jayson & Ivanic, Maros & Shaik, Saleem, 2022. "How Bilateral Trade Deals Get in the Way of Multilateral Agreements," Conference papers 333437, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Levent Celik & Bilgehan Karabay & John McLaren, 2015. "When Is It Optimal to Delegate: The Theory of Fast-Track Authority," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 347-389, August.
    7. Celik, Levent & Karabay, Bilgehan & McLaren, John, 2013. "Trade policy-making in a model of legislative bargaining," Journal of International Economics, Elsevier, vol. 91(2), pages 179-190.
    8. Levent Celik & Bilgehan Karabay, 2016. "Veto players and equilibrium uniqueness in the Baron–Ferejohn model," Theory and Decision, Springer, vol. 81(1), pages 33-52, June.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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