How Does Free Trade Become Institutionalised? An Expected Utility Model of the Chrétien Era

Michael Lusztig and Patrick James

The World Economy, 2006, vol. 29, issue 4, 491-505

Abstract: This paper seeks to go beyond the question of ‘why free trade?’ and pursues issues related to the tendency for controversial free trade agreements to become institutionalised. In other words, why do opponents of free trade not mobilise to overturn it? Even more puzzling, why do opposition parties, which had opposed passage of free trade in the first place, not undo liberalisation undertaken by their predecessors upon coming to power? Rather than seek reversal, it is not uncommon for free trade opponents, upon assuming control of the government, to deepen liberalisation initiatives, hence serving to institutionalise the very policies they had decried vigorously. Seven sections make up this study. It begins with a statement of the basic puzzle and an illustration in the recent Canadian context. The second section is a theoretical discussion of opposition parties and free trade. An expected utility model, based on the limits of rent‐seeking, is introduced in the third and fourth sections, to explain institutionalised free trade. The fifth section provides the background to the case at hand, that is, the evolution of free trade as a politico‐economic issue in Canada. The sixth section applies the expected utility model to the superficially puzzling case of Canadian Prime Minister Jean Chrétien's dramatic about‐face on the issue of trade liberalisation after coming to power. In the final section, the contributions of the model are reviewed, along with directions for future research.

Date: 2006
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