collusion collective action and protection theory and evidence this paper provides a novel explanation forthe formation of protectionist lobby groupsin imperfectly competitive sectors thelevel of collusion is shown to be a crucialdeterminant of the ability of firms tosustain lobbying we show that greatercollusion reduces firm contributionsto tariff lobbying when the governmentvalues welfare sufficiently and thecross price elasticity between the domesticand foreign goods is sufficiently high the empirical evidence from the u s supports the theory greater collusionreduces the level of pac contributions

strategic export policy with foreign direct investment and import substitution abstract the paper examines discretionary and strategic foreign direct investment fdi incentives in the export sector relative to a non interventionist policy the analysis is based on a two country model with both countries seeking to attract fdi countries differ in cost levels and in their levels of tariff protection on intermediate inputs a shift in the trade policy regime toward the strategic promotion of exports results in a decrease in fdi allocated to the low cost country when it has a low level of protection on intermediate inputs and an increase in fdi when it has a high level of protection on intermediates inputs furthermore even if fdi increases with export policy activism relative to non intervention welfare may be lower

is protection for sale evidence on the grossman helpman theory of endogenous protection grossman and helpman 1994 present a theory of endogenous protection by explicitly modeling government industry interactions for which mere black box models previously existed they obtain a ramsey pricing type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities on the lobbying side the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection the model not only makes for richer theory in terms of rigor and elegance but its predictions are directly testable whether the grossman helman model stands up to real world data is investigated in this paper predictions from both the protection side and lobbying side are tested using cross sectional u s nontariff barrier data we also compare the second generation grossman helpman model with a more traditional specification our results call for serious consideration of this model in the political economy literature

the political economy of international factor mobility we model the endogenous determination of policy towards international factor mobility in a common agency setting domestic interest groups bid for protection from the government and the incumbent politicians maximize a welfare function that depends both on domestic voters welfare and contributions collected we characterize equilibrium policies in the price space and show how the degree of complementarity among inputs determines the outcome we establish a similar result for quotas allowing for partial rent capturing for the strategic environment under consideration we also establish a general equivalence result between tariffs and quotas if capturing is complete d 2004 elsevier b v all rights reserved

technology agglomeration and regional competition for investment competition for firms by region has a long standing history and the academic literature has debated whether such competition is efficient we develop a model that explores technology development by firms facing regional competition for their invest ment and examine the endogenous determination of region policy firm technology and agglomeration externalities we find a new source of inefficiency regional competition leads firms to inefficiently distort their development and selection of production tech nology to improve their standing in the regional competition for their investment we show that these inefficient firm decisions on technology and location can also weaken agglomeration externalities jel classification h71 l2

repeated partnership games with imperfect monitoring and no discounting in a partnership game each player s utility depends on the other players actions through a commonly observed consequence e g output profit price which is itself a function of the players actions and an exogenous stochastic environment if a partnership game is repeated infinitely and each player s payoff in the infinite game supergame is the long run average of his expected one period utilities then efficient combinations of one period actions can be sustained as nash equilibria of the supergame even if the players cannot observe other players actions or information but can only observe the resulting consequences

black hole tariffs and endogenous policy theory political economy in general equilibrium preface acknowledgments list of results 1 a preview of the results 2 endogenous policy theory a diagrammatic approach part i endogenous policy theory with specific factors the theory of industry tariffs in partial equilibrium 3 the probabilistic voting model of political efficiency and powerless politicians 4 endogenous lobbying theory and the contribution specialization theorem 5 endogenous tariff theory 6 the power function model of endogenous industry lobbying 7 three simple tests of the stolper samuelson theorem 8 the invisible foot and the waste of nations lawyers as negative externalities part ii endogenous policy theory in general equilibrium a long run theory of national tariff levels 9 the 2 x 2 x 2 x 2 model of endogenous redistribution theory 10 a prisoner s dilemma theory of endogenous protection the leontief model 11 the compensation effect and the multiple equilibrium trap 12 increasing returns to politics and factor endowments economic development and brazilian vitality versus the indian disease 13 endogenous protection in the united states 1900 88 14 a cobb douglas model 15 black hole tariffs 16 the endowment effect cross national evidence on endogenous tariffs part ii postscript 17 the senile industry argument for protection 18 optimal obfuscation and the theory of the second worst the politically efficient policy mathematical appendices references author index subject index

the political economy of declining industries senescent industry collapse revisited many observers have noted a strong tendency for protection once it is instituted to persist over time this paper first shows that persistent protection arises whenever lobbying is an alternative to costly adjustment with endogenous protection the level of tariffs is an increasing function of past tariffs the more an industry lobbies the greater the current protection it receives and the less it adjusts and the less the industry adjusts the more effective it is as a lobby in the future when the costs of lobbying and adjustment are fully variable declining industries contract more slowly over time and never fully adjust however the paper shows that adding a fixed cost of lobby formation or maintenance is sufficient to generate an endogenous collapse of protection such as that predicted by cassing and hillman 1986 american economic review 76 516 523 in which an industry abruptly terminates its lobbying and loses its protection finally the paper examines the well documented bias against growing industries in the lobbying process

how to maximize domestic benefits from foreign investments the effect of irreversibility and uncertainty when a foreign monopolist facing uncertain future demand can either export to a host country or serve the market by undertaking an irreversible foreign direct investment the host government maximizes net domestic benefits by nearly fully subsidizing the investment cost in combination with taxing away benefits that exceed the gains from exporting without the subsidy maximization of domestic benefits leads to underinvestment from a world welfare point of view

protection for sale in a developing country democracy vs dictatorship for a genuine small open economy that has experienced both dictatorship and democracy we find support for the predictions of the grossman helpman 1994 protection for sale model in contrast to previous studies we use various protection measures including tariffs the direct measure of the theoretical model and perform both single year and panel regressions using turkish industry level data the government s weight on welfare is estimated to be much larger than that on contributions more importantly we find that this weight is generally higher for the democratic regime than for dictatorship

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

simulating currency substitution bias the sign and size of estimates of the elasticity of currency substitution critically depend on the definition of the oppurtunity costs of holding money we investigate possible biases by means of monte carlo experiments as sufficient real data are not available

u s corporate interests and the political economy of trade policy this paper examines the behavior of american corporations with respect to international trade policy initiatives during the 1970s using survey generated data on revealed corporate trade policy interests and firmand industry level data on company characteristics direct or proxy variables were developed and applied in linear regression equations using an ordered probit specification and in an alternative approach using factor analysis to construct a composite dependent variable hypothesized relationships were verified between corporate positions on trade liberalization and the intensity of competition from imports the benefits from improved access to foreign markets and internal risk pooling capabilities of firms firms exposed to the international competitive environment inevitably have a stake in national trade policy this paper explores the revealed behavior of u s corporations on matters of trade policy in the 1970s it develops a set of hypotheses linking corporate trade policy positions to a series of company and industry attributes these hypotheses are tested using survey generated information regarding corporate behavior on trade policy matters beginning with the protectionist burke hartke initiatives of the early 1970s through the post tokyo round period at the end of the decade studies of the political economy of protection typically begin with the proposition that import barriers create rents that can be appropriated by the protected industry the size of the rents to be obtained and their probable division among the various participants in the industry partly determine the intensity of protection seeking behavior lobbying undertaken by participants in the industry brock and magee 1978 the intensity is also influenced by the degree of success expected in the political arena and by imperfections in the lobbying process for instance the incentive to be a free rider on the lobbying efforts of others walter and jones 1981 the actual outcome of protection seeking activity is conditioned by a variety of political considerations as well for instance politicians may be constrained by the possibility of repercussions from groups adversely affected by protection including consumers and export oriented industries foreign competitors are also affected so that issues concerning foreign relations enter into the decision process in addition politicians may be influenced more generally by ideology party platforms or attitudes toward equity a number of researchers including ball 1967 fieleke 1976 clark 1980 and ray 1981a 1981b have verified that a significant positive correlation exists between nominal tariff rates or effective rates of protection across manufacturing industries and low skilled labor intensity taken to be an indicator of the intensity of import competition and thus related to the size of the rents that could be obtained by protection cheh 1974 and bale 1977 analyzed the determinants of the percentage reductions in rates of duty resulting from the kennedy round tariff cuts concluding that the cuts were determined in such a way as to minimize labor adjustment costs see also allen lewis and tower 1980 marvel and ray 1983 also explored the determinants of kennedy round tariff cuts finding the size of tariff cuts tended to be smaller if an industry was more concentrated or sold a larger fraction of its output to household consumers and larger if the industry was more intensive in research and development r d or more highly unionized the result for r d presumably represents the desire at the industry level for improved access to export markets achievable through larger reciprocal reductions in protection on the part of foreign countries along somewhat different lines baldwin 1976 analyzed several key congressional votes on the received for publication november 21 1983 revision accepted for publication december 14 1984 new york university the authors are grateful to robert lipsey robert j levenson j peter jarrett and james green for providing data that contributed to this study to jang ro lee ashok chatterjee and monica kaufmann for research assistance and to bill greene for providing advice on the estimation technique and computer program used to perform the statistical analysis thomas a pugel is also grateful for the support of an esmee fairbaim research fellowship at the university of reading 1 in both studies ray also explores nontariff barriers ntbs across u s manufacturing industries aside from finding a positive relationship between tariff rates and ntbs the results are not easily interpreted however there is some inferential evidence in walter 1971 which finds a significant positive relationship between ntb incidence and presumably relatively low skill intensive developing country exports

competition for firms in an oligopolistic industry the impact of economic integration we set up a model of generalised oligopoly where two countries of different size compete for an exogenous but variable number of identical firms the model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed as economic integration proceeds equilibrium taxes initially decline but then rise again as trade costs fall even further a range of trade costs is identified where economic integration raises the welfare of the small country but lowers welfare in the large country

strategic tax competition implications of national ownership abstract two jurisdictions compete to capture the rents of a large multinational enterprise mne which invests locally and which is partly owned by local investors the mne contributes to local welfare by tax payments and dividends and it has private information about the efficiency of the operations in the two localisations it is shown that the distortions in the mne s real investment portfolio are determined by a trade off between fiscal externalities and equity externalities and that investments in the case of strategic tax competition may be lower than in the co operative case ownership matters and we show how the firm may reduce its overall tax payments by influencing the distribution of owner shares between investors in the two countries

bidding for firms recently toyota sought a plant location in the united states the 800 million plant will employ 3000 workers and numerous states offered toyota generous investment incentives hoping this would induce toyota to select their state the commonwealth of kentucky won this competition but the price was high the present value of the payments exceeds 125 million the payment of investment incentives for the toyota plant is not unique in 1976 pennsylvania paid 75 million to attract a volkswagen plan nissan honda and mazda received generous investment incentives when locating plants in the united states and this bidding is not limited to states to attract the headquarters of the presbyterian church usa with its 1300 jobs and 38 million annual payroll civic leaders in louisville kentucky offered the church a warehouse and 6 2 million for renovation of the structure bidding the church away from kansas city missouri in this paper we contend that this competition may result from the average cost pricing of publicly provided goods and services 2 when the marginal cost of providing a firm and its workers with public services is less than the tax revenue they generate a government may offer the firm subsidies that reduce the distortions the average cost pricing of the public service creates thus this competition for industry is not a zero sum game where the subsidies are only transfers from the government to the firm rather these subsidies may facilitate the efficient location of industry

lobbying and international cooperation in tariff setting abstract this paper develops a theory of tariff protection that incorporates cooperative behavior and lobbying governments use import tariffs or subsidies to maximize a weighted sum of lobbying contributions and general welfare governments do not use export taxes or subsidies and thus balance the interests of export and import competing lobbies in setting tariff levels in a symmetric model cooperation between governments is sustained by threats of punishment in future periods unless governments place too much weight on the future the result is a cooperative tariff otherwise the result is a reciprocal import subsidy

tariffs quotas and market structure this paper examines the effects of tariffs and quotas on the pricing pattern of producers in the case of duopoly by a domestic monopolist and a foreign monopolist it is pointed out that tariffs and quotas may induce completely different pricing patterns in the two producers under a quota it is always profitable for the home producer to be a price leader and for the foreign producer to be a follower whereas under a tariff either producer may become a leader it is also proved that whatever leader follower relation is chosen under a tariff a quota always bring about a higher domestic price than the tariff as long as both permit the same amount of imports

regional tax coordination and foreign direct investment this paper analyses the effects of a regionally coordinated profit tax or location subsidy in a model with three active countries one of which is not part of the union and a globally mobile firm we show that regional coordination can lead to two types of welfare gain first for investments that would take place in the union in the absence of coordination a coordinated tax increase can transfer location rents from the firm to the union second by internalising all of the union s benefits from foreign direct investment a coordinated tax reduction can attract more welfare enhancing investment than when member states act in isolation depending on which motive dominates tax levels may thus rise or fall under regional coordination

competition for foreign direct investments abstract this paper models international competition for foreign direct investment as a common agency problem using the theory of menu auctions developed by bernheim and whinston in the model national governments act as principals and a multinational corporation as the single agent governments are assumed to maximize the net wage income generated by the corporation s investment it is shown that in the equilibrium of this game a high wage country may be able to attract investment even though all countries use subsidies furthermore it is shown that a country may choose to pay the highest subsidies even if it attracts less investment than in the unsubsidized regime our framework can also be used to study interregional subsidy competition within a country

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

us non tariff barriers as privately provided public goods abstract the endogenous theory of protection is empirically investigated in a different light rather than emphasizing the determinants of the supply of protection the present study emperically investigates the micro level demand side behavior of firms predictions from bergstrom et al journal of public economics 1986 2 25 49 about the private provision of public goods provide a theoretical foundation for such a demand side econometric investigation if rational lobbies are observed to behave in a manner consistent with the theory of the private provision of public goods then it must be the case that they are able to influence trade policy the econometric specification is also consistent with the special interest models of olson the logic of collective action public goods and the theory of groups harvard university press 1965 stigler bell journal of economics and management science 1971 2 137 146 baron quarterly journal of economics 1989 1 45 72 and grossman and helpman american economic review 1994 84 833 850 hence evidence presented in this study from the demand side behavior of firms has the deeper implication that it validates the theory of endogenous protection an issue that is still controversial among trade theorists

on the formation of industry lobby groups abstract this paper provides a step towards a more complete theory of lobbying extending the menu auction model of grossman and helpman grossman g m helpman e 1994 american economic review 84 833 850 a new explanation is proposed for why more concentrated industries more easily overcome the free rider problem inherent in political collective action instead of focusing on transactions costs as olson olson m 1965 the logic of collective action harvard university press cambridge ma we show that more collusive industries with higher collusive profits have a greater incentive to form lobby groups and to contribute to industry lobbying moreover more polluting industries also have a greater incentive to form and contribute to a lobby group

campaign contributions as investments the u s house of representatives 1980 1986 this paper treats the market for special interest campaign contributions and political favors as a simple asset market the model yields a simple equilibrium relationship among three variables the total amount of investor contributions a candidate receives the monetary value of the favors he has promised and his probability of winning using data on open seat races for the u s house of representatives i confront the model with a series of tests despite the starkness of the model the results of these tests are highly supportive

competing destinations gravity model an application to the geographic distribution of fdi the competing destinations formulation of the gravity model ensues from the fact that unlike the classical version this approach explicitly acknowledges the interdependence of the flows between a set of alternative locations i e country recipients are competing for foreign direct investment fdi this article examines empirically a range of theoretical hypotheses about the determinants of fdi location in a panel data regression framework the results of the estimation of a gravity model lend support to the proximity concentration and internalization hypotheses also the fact that fdi has been found to be decreasing in the competition posed by alternative locations is suggestive of the superiority of the competing destinations version of the gravity equation over its classical formulation

the political economy of administered protection trade restrictions are hardly ever voted directly by congress though the threat of direct congressional action is frequently present pressure for protection is usually applied through the major instruments for the administrative regulation of imports the antidumping and countervailing duty procedures and the escape clause mechanism in this paper we will examine these instruments for the administrative regulation of imports the form of the paper is not novel a theory of how these mechanisms work is developed then operational implications of this theory are deduced and tested over the record of countervailing duty antidumping and escape clause cases decided from 1975 through 1979 this is the period over which the trade act of 1974 was in force because the nature of these mechanisms is relatively unfamiliar a relatively large amount of institutional information is provided

multinational enterprises their private and social benefits and costs government policy makers in many countries compete to attract fdi because they believe that fdi will generate knowledge spillovers in the local economy however there is surprising little empirical evidence in favour of substantial spillovers this raises the question of what benefits can be appropriated by host countries when spillovers are small this paper analyses the issue using a simple model of the global strategy of a profit maximising mne it is based on a partial equilibrium model of the firm although less sophisticated than the general equilibrium approach it provides a sharper focus on fundamental policy issues it shows that the principal social benefit conferred by an mne is measured by the profit its subsidiary generates this reflects the fact that according to standard theory the mne is an institutional arrangement for appropriating rents from innovation other rents may also accrue to local factors of production the model is used to appraise a range of alternative policy instruments for maximising national benefit from fdi

spillovers and international competition for investments abstract two jurisdictions compete to attract shares of the investment budget of a large multinational enterprise whose investments confer positive spillovers on national firms the firm has private information about its efficiency and about spillovers it is shown that the firm may be harmed by tax competition relative to a cooperative tax agreement tax competition may induce excessive investments in the country where the positive spillover effects are lowest also with sufficiently asymmetric spillovers investments under competition will be excessively spread out not properly concentrated to the country where spillovers would be largest

profit taxation and the mode of foreign market entry abstract this paper studies the role of profit taxation for an international firm s decision upon how to penetrate a foreign market through exports or through foreign direct investment fdi and local supply we show that with harmonized taxes the international firm may choose fdi even though this has welfare costs from a global point of view with tax competition the host country can enforce exporting instead of fdi this leads to a nash equilibrium associated with higher world welfare than harmonized taxes thus because of the effect on entry mode tax competition provides heretofore unexplored benefits as compared to tax harmonization

explaining armington what determines substitutability between home and foreign goods for decades trade economists have modeled imperfect substitution between home and foreign goods in consumption often called the armington assumption with little analysis of what explains the wide variation in these substitution elasticities across sectors using a varying coefficients model the authors estimate armington elasticities between u s domestic and foreign goods across over one hundred industrial sectors from 1980 to 1988 and examine the role of product industry political and home bias factors as determinants they find strong support that the presence of foreign owned affiliates affects armington elasticities in important ways and some support that entry barriers and union presence have an effect

money and its substitutes abstract measurement of the elasticity of substitution between financial assets is an important element in evaluating the role that those assets play in the economy this paper generalizes the model developed by chetty by relaxing the separability conditions while restoring homotheticity to the utility function the general model is found to produce empirical estimates that are statistically superior to the original while substantially reducing the estimated elasticities of substitution consequently the various types of savings accounts no longer appear to be very close substitutes for money balances

the kennedy round evidence on the regulation of international trade in the united states the purpose of this paper is to analyze and provide empirical evidence regarding the regulation of international trade flows our goal is to provide an explanation of the changes in the interindustry pattern of trade restrictions which emerged from the kennedy round of tariff negotiations the principal conclusion of the analysis is that the pattern of protection which resulted from the kennedy round was shaped to minimize the domestic political disruption resulting from liberalization industries which faced significant import threats and whose characteristics enhanced their potential political influence were able to maintain tariff protection in the face of overall liberalization the potential impact of the agreed upon tariff reductions was partially undermined by the introduction of offsetting nontariff trade barriers ntbs in addition ntbs were introduced systematically in industries that were becom

do countries compete over corporate tax rates this paper tests whether oecd countries compete with each other over corporate taxes in order to attract investment we develop two models with firm mobility countries compete only over the statutory tax rate or the effective average tax rate while with capital mobility countries compete only over the effective marginal tax rate we estimate the parameters of reaction functions using data from 21 countries between 1983 99 we find evidence that countries compete over all three measures but particularly over the statutory tax rate and the effective average tax rate this is consistent with a belief amongst governments that location choices by multinational firms are discrete we also find evidence of concave reaction functions consistent with the model outlined in the paper

competing for a duopoly international trade and tax competition we analyse the tax subsidy competition between two potential host governments to attract the plants of rms in a duopolistic industry competition between identical countries for a monopoly rm s plant is known to result in subsidy in ation which leaves the winning country indierent towards hosting the rm in sharp contrast we show that with two rms both are taxed in equilibrium and the host countries appropriate the entire social surplus generated within the industry despite the explicit non cooperation between governments we extend our baseline model to allow for dierences in country size we investigate when this size asymmetry becomes su ciently large to change the nature of the equilibrium inducing concentration of production in the larger country

a dual approach to measuring the nearness of near monies increasing returns to scale rts is frequently po stulated as affecting productivity in surface coal mining however it is not cl ear whether increased capital intensity or increased output is the relevant phen omenon a ray homothetic production function that incorporates the capital labor mix and fixed site geology into the scale elasticity is presented and estimated with a micro mine level dataset the results indicate that higher capital int ensity contributes to higher rts for some types of capital equipment but not al l on the average increasing rts was found with few mines approaching optimal scale copyright 1987 by mit press

do countries compensate firms for international wage differentials we address the role of labor cost differentials for national tax policies modeling a tax competition race between two countries competing for a population of mobile firms we show that in equilibrium the high wage country charges a lower tax than the low wage country moreover under tax competition the high wage country attracts more firms than in a setting without taxation exploiting exogenous variation in labor cost differentials induced by the breakdown of communism in eastern europe we find that tax policies are in line with the model prediction our most conservative estimates suggest that a one dollar increase in the compensation cost differential in prices as of 2000 triggers a cut of the statutory corporate income tax rate by about one percentage point

should governments subsidise inward foreign direct investment what happens when a government has incentives to subsidise inward fdi when labour markets are imperfectly competitive contrary to the traditional assumption in the literature we allow the production in the multinational firm to either complement or substitute for local production a new result is that the wage in the host country may decrease when production is moved to this country the reason is that the union in the host country internalises product market externalities between the firms furthermore it is shown that when a single country subsidises inward fdi total world welfare might increase

endogenous lobby formation and endogenous protection a long run model of trade policy determination this paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions under certain conditions free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare moreover greater inequality in asset distribution results in a greater number of lobbies and in most cases more protection for each of these lobbies furthermore industries with higher levels of capital stock fewer capitalists more inelastic demand and smaller geographical dispersion are the ones that get organized

trade policy reform endogenous lobby group formation and environmental policy abstract this paper explores the effects of trade liberalization on environmental policy outcomes when collective action is endogenous the polluting industry s ability to undertake lobbying is shown to depend on the degree of competition in the product market establishing a new link between trade and environmental policies if trade liberalization causes industry collective action to become harder to sustain the stringency of the environmental policy is likely to rise these results highlight the role of trade liberalization on product market competition and its consequent impact on the incentive to lobby for less stringent environmental policies

determinants of foreign direct investment a tale of nine theoretical models abstract this paper presents a review of nine theoretical models of foreign direct investment fdi discussed are early studies of determinants of fdi 1 as well as determinants of fdi based on the neoclassical trade theory 2 ownership advantages 3 aggregate variables 4 the ownership location and internalization advantage framework 5 horizontal and vertical fdi models 6 the knowledge capital model 7 diversified fdi and risk diversification models 8 and policy variables 9 from each of the nine theories the relevant determinants of fdi are derived empirical studies indicate the importance of these determinants in the real world the paper shows that there is not one single theory of fdi but a variety of theoretical models attempting to explain fdi and the location decision of multinational firms therefore any analysis of determinants of fdi should not be based on a single theoretical model instead fdi should be explained more broadly by a combination of factors from a variety of theoretical models such as ownership advantages or agglomeration economics market size and characteristics cost factors transport costs protection risk factors and policy variables

is there a free rider problem in lobbying endogenous tariffs trigger strategies and the number of firms there are two reasons we expect moreconcentrated industries to have advantages over less concentrated industries in playing the lobbying game one is that in a noncooperative setting as the number firms rises we expect the free rider problem to become worse this is the finding of rodrik 1986 the second is that we expect that the ability to maintain a cooperative outcome deteriorates as the number of firms in the industry rises the classic reference is mancur olson 1965 also see russell hardin 1982 and todd sandler 1992 among others in contrast with the second intuition this paper shows that there is no general presumption that maintaining cooperation becomes more difficult as the number of firms in the industry rises the ability of an industry to overcome the free rider problem is analyzed in a re peated tariff lobbying game where cooperation may be maintained through the use of a simple trigger strategy 2 the difficulty of maintaining cooperation is measured by the critical value of the discount parameter all values above this critical value are consistent with cooperation and all values below the critical value imply that cheating will prevent maintenance of the cooperative outcome there is no presumption that this critical value rises with the number of firms a separate but related question involves asymptotic results standard intuition suggests that as industry structure approaches perfect competition it becomes impossible to maintain cooperation in the context of this paper this intuition corresponds to the critical value of the discount factor converging to i as the number of firms increases to infinity in the general case it is shown that the critical value of the discount parameter converges to a value less than 1 in the limit as the number of firms becomes arbitrarily large if the actual discount parameter lies above this value then cooperation may be maintained even with an infinite number of firms though the framework here is quite simple it provides results which contrast sharply to our standard intuition about how industry structure affects the ability to maintain cooperation there are two ways to interpret the results of this paper one is to assert that standard intuition is wrong and that there is in fact no presumption that maintaining cooperation becomes more difficult as the number

legislators and interest groups how unorganized interests get represented this paper derives a supply price for public policy using a constrained maximization model in the model three sets of agents each have preferences over outcomes organized interest groups offer campaign contributions to improve their own wealth voters offer votes to obtain outcomes closer to their most preferred outcomes and legislators seek both campaign contributions and votes to obtain reelection a given legislator s supply price for policy is shown to depend on the productivity of his effort as determined by committee assignments priority and ability and by the preferences of his unorganized constituency in the home district two extreme assumptions about the effectiveness of campaign spending in eliciting votes are used to illustrate the comparative statics properties of the model the prediction of the model is that interest groups will in general seek out legislators whose voters are indifferent to the policy the interest group seeks thus voters who do have preferences over policy are in effect represented even though they are not organized

are contributors rational untangling strategies of political action committees empirical public choice literature and casual observation suggest that the behavior of political action committees is remarkably unsophisticated meaning that pacs give to those legislators who would support their interests anyway thus it is suggested that contributor behavior deviates from rational behavior which is a cornerstone of economic analysis in this paper a switching regression model is estimated that allows for strategies of pacs to vary for different contribution recipients i analyze the behavior of farm pacs over three election cycles in contrast to previous findings i find that contributor behavior is not inconsistent with rational behavior contributors who attempt to influence the voting behavior of members of congress give the most money to legislators whose constituency interest suggests that they are likely to be undecided on how to vote and pacs give less money to legislators who represent districts with larger farm populations because those legislators are likely to vote in con

the determinants of industry political activity 1978 1986 c ampaign contributions made by corporate political action committees pacs are increasingly important and controversial in u s elections influence purchasing is often alleged by pundits and campaign finance reform is continually debated in congress in the academy social scientists have analyzed the allocation of interest group monies and have looked for possible impacts on legislation few however have tried to explain the total contributions of economic interest groups we shall analyze variations in contributions across industries and over time with an empirical model based on organizationally constrained profit maximizing behavior we assume that corporate pac contributions in an industry are raised to enhance industry profits subject to the constraints of organization costs and freeriding incentives our empirical work covers 124 industries over five election cycles from 1978 through 1986 both the costs and benefits of political activity vary across industries we argue that the benefits of political action are determined by direct contact with the government as a regulator or purchaser of industry output by government s ability to ameliorate adverse market conditions and by the industry s ability to solve collective action problems without government assistance the costs of industry political action arise mainly from collective action problems because effective political activity often requires concerted action by the constituent firms in each industry we also make a methodological contribution previous studies use statistical techniques that suffer from sample selectivity bias or else force the probability of acting politically to be explained by the same set of coefficients as is the amount of action taken we explain and employ a technique that accounts for both problems the results are consistent with the theses that industries follow investment oriented goals in deciding the amount of political action to undertake and that collective action problems are important constraints on industry political activity we can explain between 60 and 80 of the variation in contributions in our sample first we review existing work on corporate political activity particularly papers examining patterns of aggregate pac spending by industry then we present an organization cost constrained industryprofit maximizing model based on a comparison between an idealized zero organization cost industry and the more realistic case where organizing collective action is difficult the independent variables used in the analysis are also discussed and defined next we discuss the dependent variable and total industry contributions and explain our statistical method then the results are presented followed by a discussion of industry structure and political activity to make clear how our results can explain different contribution patterns we give examples using five actual industries

on the welfare effects of competition for foreign direct investments abstract this paper investigates welfare effects of subsidy competition for the location of a multinational enterprise one of the competing regions benefits more from the inward investment but in the absence of incentives the multinational s preferred location is the other more advanced region the paper shows that subsidies by making the multinational switch location may increase aggregate welfare if the multinational exports in the absence of incentives the welfare effects of subsidy competition may look very different allowing subsidies attracts the direct investment which otherwise would not take place in one of the two regions further it intensifies competition in the market the paper shows that the welfare increasing role of incentives may be amplified but also that the competition effect by hurting domestic firms may cancel out any other positive role of incentives

the political economy of international trade and factor mobility abstract free trade in goods and factors is efficient when we move away from economic theory and consider the policies actually followed by governments we observe distortions being implemented both on goods and factors trades it is natural then to question the relative merits of the two types of intervention and the normative literature has provided only partial answers we ask then why is the international flow of goods and factors not free and the political economy literature has looked at the two issues only separately in studying the determination of trade policy a theoretical paradigm has emerged focusing on the role of influence driven contributions this approach has also found strong empirical support the literature on the political economy of factor mobility on the other hand is fragmented distortions in labor and capital flows are typically the subject of different studies and only recently a unified framework has been proposed more work has to be done in this area as well as in integrating the political economy of trade and factor movements

eu regional policy and tax competition the european union eu provides coordination and financing of trans european transport infrastructures i e roads and railways which link the eu member states and reduce the cost of transport and mobility this raises the question of whether eu involvement in this area is justified by inefficiencies of national infrastructure policies moreover an often expressed concern is that policies enhancing mobility may boost tax competition we analyze these questions using a model where countries compete for the location of profitable firms we show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition in contrast with regard to union periphery infrastructure the union has an interest in a coordinated reduction of investment expenditures here the effects on tax competition are ambiguous our results provide a rationale for eu level regional policy that supports the development of intra union infrastructure

industrial blackmail dynamic tax competition and public investment a dynamic model of intergovernmental competition for a large plant is presented when local productivity is uncertain one firm determines the location of its plant in each period by conducting an auction soliciting bids from local governments equilibrium subsidies from the local governments are derived the author also consider a two stage game where local governments first choose a level of costly infrastructure then participate in the sequential auction even when costs are identical across locations investing in different levels of infrastructure is a nash equilibrium moreover when infrastructure is endogenous in this manner it is chosen efficiently

service induced campaign contributions and the electoral equilibrium candidates for office are modeled as promising services such as support for legislation and intervention in the bureaucracy to interest groups in exchange for campaign contributions an electoral equilibrium is characterized in which candidates choose service contribution offers and interest groups choose whether to contribute the model provides several explanations of congressional incumbents success in over 90 percent of their reelection contests a recognition advantage a high personal valuation of the office a lower cost of providing services and policy alignment with high demand interest groups the model yields predictions that are consistent with empirical findings on the relation between campaign contributions and election outcomes

tariffs subsidies and welfare with endogenous policy abstract it is a well established proposition of trade theory that in the absence of directly trade related distortions or policy goals subsidies are superior to tariffs for achieving any economic or non economic objective this paper shows that once the endogeneity of the distortion or non economic objective is allowed for the welfare ranking of various policies can be reversed the particular model analyzed is one where the level of non economic objectives that have to be fulfilled itself depends on the policy tools considered to fulfill them with this arises from the public good nature of tariffs compared to subsidies

theory and relevance of currency substitution with case studies for canada and the netherlands antilles textabstractabstract this paper develops the theory of currency substitution from a choice theoretic point of view the main result offers a simple relationship between the relative amount of currencies held and their opportunity costs i e interest and capital gains our hypothesis is tested by case studies for canada and the netherlands antilles in contradistinction with other studies we conclude that the elasticity of currency substitution is very small and negative it is shown how the omission of the interest term in other studies biases the elasticity of currency substitution considerably

endogenous trade policy and lobby formation an application to the free rider problem abstract this paper develops a model in which tariffs are determined through bargaining between a utility maximizing policy maker and an industry lobby individual firms only contribute to the lobbying effort if it is in their own self interest so that both trade policies and lobby formation are endogenous by introducing bargaining between the industry and the government the paper provides microfoundations for the tariff formation function approach taken by many authors in the political economy literature applied to the free rider problem the model identifies general conditions under which increasing the number of firms in an industry makes cooperation between them more difficult