Self-enforcing trade agreements and lobbying

Research output: Contribution to journalArticle

Abstract

In an environment where international trade agreements must be enforced via promises of future cooperation, the presence of an import-competing lobby has important implications for optimal punishments. When lobbies work to disrupt trade agreements, a Nash reversion punishment scheme must balance two conflicting objectives. Longer punishments help to enforce cooperation by increasing the government's costs of defecting, but, because the lobby prefers the punishment outcome, this also incentivizes lobbying effort and with it political pressure to break the agreement. Thus the model generates an optimal length for Nash reversion punishments, and it depends directly on the political influence of the lobbies. Trade agreement tariffs are shown to be increasing in the political influence of the lobbies, as well as their patience levels.

Original languageEnglish (US)
Pages (from-to)226-242
Number of pages17
JournalJournal of International Economics
Volume108
DOIs
StatePublished - Sep 1 2017

Keywords

  • Enforcement
  • Lobbying
  • Optimal punishments
  • Repeated games
  • Trade agreements

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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