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Lobbying and Information Transmission in Customs Unions

Rafael Lima (), Humberto Moreira () and Thierry Verdier ()

No 09_01, Working Papers from Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto

Abstract: This paper studies a customs union agreement when governments are subject to the pressure of special interest groups that have better information about the competitiveness of the industries they represent. We focus on the agreement’s effect on the structure of political influence. When joining a customs union, the structure of political pressure changes and with privately informed lobbies, a new effect emerges: the governments can use the information they learn from the lobby of one country to extract rents from the lobbies of the other country. We call this the “information transmission effect”. This effect enhances the governments’ bargaining power in a customs union and makes lobbies demand less protection. Thus, we find that information transmission increases the welfare of the agreement and decreases tariffs towards non-members. We also investigate the incentives for the creation of a customs union and find that information transmission makes such agreement more likely to be politically sustainable.

Keywords: preferential trade agreements; customs union; political economy; lobbying; asymmetric information (search for similar items in EconPapers)
JEL-codes: F13 F15 D82 (search for similar items in EconPapers)
Date: 2008-10
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