Endogenous trade policy and lobby formation: an application to the free-rider problem

This paper develops a model in which tariffs are determined through bargaining between a utility maximizing policy maker and an industry lobby. Individual firms only contribute to the lobbying effort if it is in their own self-interest so that both trade policies and lobby formation are endogenous....

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Bibliographic Details
Published in:Journal of international economics 2002-08, Vol.57 (2), p.449-471
Main Author: Magee, Christopher
Format: Article
Language:English
Subjects:
Bargaining
Economic models
Economics
Free riding
Free-rider problem
Industrial economics
Lobbying
Policy making
Studies
Tariffs
Trade policy
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Summary:This paper develops a model in which tariffs are determined through bargaining between a utility maximizing policy maker and an industry lobby. Individual firms only contribute to the lobbying effort if it is in their own self-interest so that both trade policies and lobby formation are endogenous. By introducing bargaining between the industry and the government, the paper provides microfoundations for the tariff-formation function approach taken by many authors in the political economy literature. Applied to the free-rider problem, the model identifies general conditions under which increasing the number of firms in an industry makes cooperation between them more difficult.
ISSN:0022-1996
1873-0353
DOI:10.1016/S0022-1996(01)00146-5