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Seminar:Endogenous Trade Protectionism and Tariffication: Implications of Interest Group Size and Free Rider Problem

 

Topic:Endogenous Trade Protectionism and Tariffication: Implications of Interest Group Size and Free Rider Problem  

Speaker: Tailiang ChenAssociate Professor of Wenlan School of Business , Zhongnan University of Economics and Law

Time14:30-16:00, May 19th , 2017

VenueWANG DAOHAN CONFERENCE ROOM, LINGNAN HALL

LanguageEnglish/Chinese

 

Abstract

Trade protectionism enables the government to apply tariffs to foreign competitors to benefit industries at home. Under asymmetric oligopoly, a welfare-maximizing tariff is known to improve domestic welfare. This paper endogenizes bargaining power between industry and government to analytically characterize an endogenous lobby formation in relation to import tariffs. Contrary to the findings reported in the existing political economy literature, the paper shows that the free rider problem always emerges in an asymmetric oligopoly. Since tariffs increase with campaign contributions, the serious problem of free-riding in the market lowers lobby-endogenous tariffs, with the rates subsequently approaching welfare-maximizing levels. Interestingly, an increase in lobbying-endogenous tariffs decreases social welfare in the game. The magnitude of the reduction of social welfare under cooperative lobbying-endogenous tariffs is greater than it under non-cooperative lobbying-endogenous tariffs. Compared with the social welfare level in the free trade scenario, this paper further shows that welfare-maximizing tariffs improve welfare whereas lobby-endogenous tariffs reduce it. As a result, welfare-improving trade liberalization occurs if the government removes lobby-endogeneous tariffs and move toward free trade.

About the speaker

Chen Tailiang is the associate professor of Wenlan School of Business, Zhongnan University of Economics and Law. He received his PhD in Economics from State University of New York at Buffalo. Chen Tailiang works on the areas of international business, industry organization theory and public economic, and his researches have been published on renowned international journals of economics studies, such as Journal of Economics (SSCI)International Journal of Economic Theory (SSCI)Operations Research Letters (SCI), International Review of Economics and Finance (SSCI), Economic Modeling (SSCI), Hitotsubashi Journal of Economics (SSCI). Professor Chen’s presented his thesis on major academic references in the past two years, including 2016 China Economic Annual Conference, 2016 Asia Meeting of Econometric Society, 2017 American Economic Association Annual Meeting, and the 9th Biennial Conference of the Hong Kong Economic Association. And he is also the anonymous reviewer of Journal of Public Economics, Canadian Journal of Economics, and Journal of Economics.

  

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