NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade Policy Making in a Model of Legislative Bargaining

Levent Celik, Bilgehan Karabay, John McLaren

NBER Working Paper No. 17262
Issued in July 2011
NBER Program(s):   ITI   POL

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.

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This paper was revised on August 30, 2013

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Document Object Identifier (DOI): 10.3386/w17262

Published: Celik, Levent & Karabay, Bilgehan & McLaren, John, 2013. "Trade policy-making in a model of legislative bargaining," Journal of International Economics, Elsevier, vol. 91(2), pages 179-190.

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