INSTITUTIONAL STRUCTURE IN THE POLITICAL ECONOMY OF PROTECTION: LEGISLATED V. ADMINISTERED PROTECTION

In endogenous tariff theory the outcome of the political process (the tariff) is a strictly private good from the perspective of the specific-factors in an industry. That is, the benefits from participation in the political process are fully captured by the participant group. We argue that this is an institutional assumption by showing that an alternative, administered protection, involves the enforcement of a rule that, once written, is applied to all industry groups, where applicable. Attempts to increase protection therefore result in benefits to all import competing industry groups. In a short-run neo-classical model of trade with no intermediate goods, you therefore get a political free rider problem that you do not get with legislated tariffs. Further, it is argued that the distinction between these forms of protection is of both empirical and philosophical relevance.