Trade policy-making in a model of legislative bargaining |
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Authors: | Levent Celik Bilgehan Karabay John McLaren |
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Institution: | 1. CERGE-EI (a joint workplace of Charles University and the Economics Institute of the Academy of Sciences of the Czech Republic), Politickych veznu 7, 111 21 Prague 1, Czech Republic;2. Department of Economics, University of Auckland, Owen G. Glenn Building, 12 Grafton Road, Auckland 1010, New Zealand;3. Department of Economics, University of Virginia, P.O. Box 400182, Charlottesville, VA 22904-4182, United States |
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Abstract: | In democracies, trade policy is the result of interactions among many agents with different agendas. In accordance with this observation, we construct a dynamic model of legislative trade policy-making in the realm of distributive politics. An economy consists of different sectors, each of which is concentrated in one or more electoral districts. Each district is represented by a legislator in the Congress. Legislative process is modeled as a multilateral sequential bargaining game à la Baron and Ferejohn (1989). Some surprising results emerge: bargaining can be welfare-worsening for all participants; legislators may vote for bills that make their constituents worse off; identical industries will receive very different levels of tariff. The results pose a challenge to empirical work, since equilibrium trade policy is a function not only of economic fundamentals but also of political variables at the time of congressional negotiations — some of them random realizations of mixed bargaining strategies. |
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Keywords: | Trade policy Multilateral legislative bargaining Political economy Distributive politics |
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