Working Paper: NBER ID: w17262
Authors: Levent Celik; Bilgehan Karabay; John McLaren
Abstract: In democracies, trade policy is the result of interactions among many agents with different agendas. In accordance with this observation, we 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 à 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. The results pose a challenge to empirical work, since equilibrium trade policy is a function not only of economic fundamentals but also of political variables at the time of congressional negotiations - some of them random realizations of mixed bargaining strategies.
Keywords: trade policy; legislative bargaining; distributive politics
JEL Codes: C72; C78; D72; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| legislative decisions (D72) | welfare of constituents (I39) |
| political bargaining process (D72) | economic outcomes (F61) |