A Model of Politics, Tariffs and Rent-seeking in General Equilibrium

This paper adapts earlier work by Brock and Magee to tariff formation and rent-seeking in the general equilibrium model of international trade. 2 We show how a political sector with two lobbies, two political parties, and two endogenous commercial policies (a tariff and an export subsidy) can be added to the standard ‘two by two’ pure trade theory model. In doing so we incorporate elements of Krueger’s theory of rent-seeking; Stigler’s and Tulloch’s approach to public-choice theory; Olson’s analysis of rent-seeking lobbies; Baldwin’s political determinants’ approach to commercial policy formulation; and the Marx and Stolper-Samuelson approach to the conflict between capital and labour over the distribution of income.3 For other important works in this area the reader should consult Findlay and Wellisz and Bhagwati and Srinivasan.4 In this paper, rent-seeking is defined as the attempt to increase one’s economic welfare by political means. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.