11_3150_pec - Political Economy of Trade Policy Political...

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Political Economy of Trade Policy Econ 3150 York U 1 Political Economy of Trade Policy Why countries impose protectionist policies, even if these policies are suboptimal? Government is a decision maker, who maximizes its utility. Legislator’s utility : U>0 if legislator stays in his office (personal wealth, political ideology) U =0 if legislator leaves Weight of each vote=1. Distribution of Voters Median Voter Pro-free trade Anti-free trade 0 0.5 1
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Econ 3150 York U 2 In order to stay in the office legislator has to satisfy the median voter. Assume: Consumers represent 95% of electorate. Each consumer faces a small loss L as a result of protection because of higher prices (e.g. $100 per year). Protected industry represents 5% of electorate, each member gains large G because protection allows him/her to keep job, get higher wages or higher profits (e.g. G= $1,000). Assume
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This note was uploaded on 06/09/2010 for the course AP 3150 taught by Professor Allalileeva during the Winter '09 term at York University.

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11_3150_pec - Political Economy of Trade Policy Political...

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