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Lobbying for Tariffs and the Cost of Protection

Published online by Cambridge University Press:  17 August 2016

S. Donnenfeld  and
S. Weber
S. Donnenfeld
Affiliation:
New York University, Graduate School of Business Administration and University of Haifa
S. Weber
Affiliation:
University of Haifa
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Extract

Until recently standard trade theory had ignored the fact that resources are devoted not only to production of goods and services but also to rent, revenue and tariff seeking activities. Competitive rent and revenue seeking and their impact on welfare and resource allocation have been thoroughly examined by A. Krueger [1974] and J. Bhagwati and T. Srinivasan [1980]. The studies mentioned above are based on the presumption that rent seeking and lobbying activities effect the availability of physical inputs employed in the production of goods. In this paper we argue that lobbying also affects the efficiency of firms through its impact on the allocation of managerial effort which is internal to the firm. This stems from the fact that firms can raise their profits by lobbying for tariffs which in turn raise the domestic price. Since managerial effort is an input in both production and lobbying activities, and since the likelihood of having a tariff levied depends on the lobbying effort, we expect some managerial effort to be directed to lobbying at the expense of production and thus adversely affecting the production efficiency of firms.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 51 , Issue 1 , March 1985 , pp. 21 - 27
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1985 

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References

REFERENCES

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