U.S. Maritime Policy and Economic Efficiency

40 Pages Posted: 25 Nov 2019

Date Written: November 13, 2019


Critics argue that maritime policy is protectionist legislation that restricts competition and reduces economic efficiency. In this paper, I argue the contrary. I begin with the premise that the primary role of the state is to provide national defense. A country must be able to protect its wealth, and therefore its capital, from plunder and/or destruction. This implies that a sufficient level of defense spending is increasing in the capital stock. An efficient solution is to tax capital to finance defense. Nonetheless, there is reason to believe that capital devoted to shipping imposes a lower marginal defense cost than other forms of capital because ships can be used as a naval auxiliary. If so, then one would expect that the optimal tax rate on shipbuilding and the merchant marine would be lower than other capital-intensive firms. Put differently, maritime subsidies during peacetime can be understood as the result of a Coaseian bargain in which the government compensates shipbuilders and the merchant marine during peacetime in exchange for their services during wartime. I argue that the history of U.S. maritime policy is broadly consistent with my theory. I conclude by discussing the current state of the merchant marine and maritime policy.

Keywords: maritime policy, Jones Act, national defense

JEL Classification: D70, E61, H21

Suggested Citation

Hendrickson, Joshua R., U.S. Maritime Policy and Economic Efficiency (November 13, 2019). Available at SSRN: https://ssrn.com/abstract=3486330 or http://dx.doi.org/10.2139/ssrn.3486330

Joshua R. Hendrickson (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

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