Business Intelligence

Trade Policy Making In A Model Of Legislative Bargaining

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Executive Summary

In democracies, trade policy is the result of interactions among many agents with different agendas. In accordance with this observation, the authors 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 a 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.

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