Negotiated Trade Restrictions with Private Political Pressure

Robert Feenstra and Tracy Lewis

No 2374, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we consider a home government with political pressure to restrict trade, at the expense of foreigners. The foreign country is compensated with an income transfer, which can be thought of as a portion of the tariff revenues or quota rents. In this setting the two countries should negotiate over the level of tariff and transfer of rents, depending on the level of political pressure at home. However, if this pressure cannot be directly observed abroad, then the home country may have an incentive to claim arbitrarily high political need and seek corresponding high trade barriers . We resolve this problem by determining incentive compatible trade policies, in which the home government has no incentive to overstate (or understate) the political pressure for protection.

Date: 1987-09
Note: ITI IFM
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Citations: View citations in EconPapers (9)

Published as Quarterly Journal of Economics, November 1991, 1287-1307

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