Protection for Sale

47 Pages Posted: 28 Jun 2004 Last revised: 11 Apr 2008

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: August 1992

Abstract

We develop a model in which special interest groups make political contributions in order to influence an incumbent government's choice of trade policy. In the political equilibrium. the interest groups bid for protection, and each group's offer is optimal given the offers of the others. The politicians maximize their own welfare. which depends on the total amount of contributions collected and on the aggregate welfare of voters. We study the structure of protection that emerges in political equilibrium and the equilibrium contributions that are made by the different industry lobby groups. and show why these groups may in some cases prefer to have the government use trade policy to transfer income rather than more efficient means. We also discuss how our framework might be extended to include endogenous formation of lobby groups. political competition between incumbents and challengers. and political outcomes in a multicountry trading system.

Suggested Citation

Grossman, Gene M. and Helpman, Elhanan, Protection for Sale (August 1992). NBER Working Paper No. w4149. Available at SSRN: https://ssrn.com/abstract=226802

Gene M. Grossman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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Elhanan Helpman

Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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