Working Paper: NBER ID: w12576
Authors: James E. Anderson
Abstract: Mutual causation of predation and trade induces novel effects of commercial policy in this paper. The model can explain trade volume responses to market widening initiatives that are otherwise puzzlingly 'too big' or 'too small'. Efficient commercial policy (broadly defined) depends crucially on the strength of enforcement. Externalities arising between traders are normally internalized by subsidizing (taxing) trade when enforcement is weak (strong). Efficient regional policy squeezes weak enforcement markets while subsidizing strong enforcement markets. Tolerance (intolerance) of smuggling is rational when enforcement is weak (strong).
Keywords: commercial policy; trade; predation; enforcement; externalities
JEL Codes: F13; K42; O17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weak enforcement (P14) | positive externality (safety in numbers) (D62) |
| positive externality (safety in numbers) (D62) | success rate of shipments for all merchants (L87) |
| strong enforcement (P14) | increased cost of hiring workers (J39) |
| strong enforcement (P14) | negative externality (D62) |
| weak enforcement (P14) | net effect positive (D62) |
| strong enforcement (P14) | net effect negative (D62) |
| liberalization (F69) | trade (F19) |
| efficient commercial policy (F68) | internalizing externalities (D62) |
| weak enforcement (P14) | subsidizing trade (F14) |
| strong enforcement (P14) | taxing trade (F19) |
| trading monopoly (D42) | internalizing externalities (D62) |
| competitive traders (D41) | failing to internalize externalities (D62) |
| presence of illegal markets (K42) | influence on legal trade response to liberalization (F13) |
| optimal policy (C61) | shifts based on enforcement conditions (P37) |
| tolerance of illegal markets (K42) | beneficial in weak enforcement scenarios (P14) |
| tolerance of illegal markets (K42) | detrimental in strong enforcement scenarios (K42) |