Protection for Sale with Imperfect Rent Capturing

University of Kiel Economics Working Paper No. 2004-01

35 Pages Posted: 14 Apr 2004

See all articles by Giovanni Facchini

Giovanni Facchini

Tinbergen Institute

Johannes Van Biesebroeck

K.U.Leuven; Centre for Economic Policy Research (CEPR)

Gerald Willmann

Bielefeld University; IfW Kiel; KU Leuven; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: October 6, 2003

Abstract

Grossman and Helpman explain tariffs as the outcome of a lobbying game between special interests and the government. Most empirical implementations of this framework use instead non-tariff barriers to measure the extent of protection. Importantly, while the former set of instruments allow the government to fully capture the rents from protection, the latter does not. As a result, structurally estimating the 'protection for sale' model using data on non-tariff barriers is likely to lead to biased parameter estimates. To address this problem, we augment Grossman and Helpman's (1994) model by explicitly considering trade policy instruments allowing only partial capturing. Taking our specification to the data, we find that, on average, 72-75 percent of the rent is actually captured. Furthermore, we obtain more realistic, lower estimates of the implied share of the population involved in lobbying activities than in the previous literature, while the estimated weight of aggregate welfare in the objective function of the government is as high as in previous studies.

Keywords: Protection for Sale

JEL Classification: F13

Suggested Citation

Facchini, Giovanni and Van Biesebroeck, Johannes and Willmann, Gerald, Protection for Sale with Imperfect Rent Capturing (October 6, 2003). University of Kiel Economics Working Paper No. 2004-01. Available at SSRN: https://ssrn.com/abstract=529323 or http://dx.doi.org/10.2139/ssrn.529323

Giovanni Facchini

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

HOME PAGE: http://paople.few.eur.nl/facchini

Johannes Van Biesebroeck

K.U.Leuven ( email )

Naamsestraat 69
B-3000 Leuven
Belgium
+3216326793 (Phone)
+3216326796 (Fax)

HOME PAGE: http://www.econ.kuleuven.be/public/N07057/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Gerald Willmann (Contact Author)

Bielefeld University ( email )

Universit├Ątsstra├če 25
Bielefeld, NRW 33613
Germany

IfW Kiel ( email )

P.O. Box 4309
Kiel, D-24100
Germany

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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