Discussion paper

DP11980 Wedges: Distribution, Distortions, and Market Integration

This paper proposes a stylized model of policy determination and imperfect international integration. A policy wedge aims to correct laissez-faire market imperfections and/or redistribute welfare across heterogeneous agents. Policy is subject to both race-to-the-bottom and beggar-thy-neighbor forces if the country's politico-economic equilibrium interacts with the rest of the world. Variation of international market wedges induces patterns of country-specific regulation and deregulation that depend on political and structural features in non-obvious, intuitive, and empirically realistic ways.


Bertola, G (2017), ‘DP11980 Wedges: Distribution, Distortions, and Market Integration‘, CEPR Discussion Paper No. 11980. CEPR Press, Paris & London. https://cepr.org/publications/dp11980