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Discussion Paper Details

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Title: Protection for Sale

Author(s): Gene M. Grossman and Elhanan Helpman

Publication Date: June 1993

Keyword(s): Political Economy, Political Support, Special Interests, Structure of Protection and Tariff Formation

Programme Area(s): International Trade and Regional Economics

Abstract: We develop a model in which special interest groups make political contributions in order to influence an incumbent government's choice of trade policy. In the political equilibrium, the interest groups bid for protection, and each group's offer is optimal given the offers of the others. The politicians maximize their own welfare, which depends on the total amount of contributions collected and on the aggregate welfare of voters. We study the structure of protection that emerges in political equilibrium and the equilibrium contributions that are made by the different industry lobby groups, and show why these groups may in some cases prefer to have the government use trade policy to transfer income rather than more efficient means. We also discuss how our framework might be extended to include endogenous formation of lobby groups, political competition between incumbents and challengers, and political outcomes in a multicountry trading system.

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Bibliographic Reference

Grossman, G and Helpman, E. 1993. 'Protection for Sale'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=827