ECON 101 Lecture 16: Lecture 16 - Political Economy of Trade Policies
Document Summary
Lecture 16 - political economy of trade policies. However, direct removal of market failures would be more efficient than second-best policies. Environmental side effects (negative externality) are better addressed with pollution licenses than trade restrictions. Political economy: political outcomes do not necessarily have to do with governmental benevolence, in practice, trade policy is dominated by income distribution considerations. Governments maximize political success: voters" policy preferences are only imperfectly reflected in government models, political economy models: electoral competition, collective action, political. 1) electoral competition: political parties pursue policies so as to maximize their votes. Single policy decision: the overall import tariff level: consider 2 competing parties, each aiming at election to office. Voters differ in the preferred tariff level: median voter theorem: both parties will offer the same trade policy, consisting in the tariff that the median voter prefers. If you don"t place at the median, you might lose (you need 50% or more to get your choice)
