Arye L. Hillman

Dissipation of contestable rents by small numbers of contenders

The theory of rent seeking with its origins in the observations of Gordon Tullock (1967) - or to use Jagdish Bhagwatis (1982) proposed term, the theory of directly unproductive profit-seeking activities - is concerned with the potentially adverse effects on resource allocation of incentives to cap- ture and defend artificially-contrived rents and transfers. The scope for so- cial loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the con- test to determine the beneficiary of the prize. Underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended. It has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking. Then, if some further condi- tions are satisfied, l the total value of the resources expended precisely equals the value of the prize sought, so dissipation is complete. 2 Conse- quently, the social cost associated with contestability of a rent can be in- ferred from the value of the rent itself, and the detailed and hard-to-come- by information on individual outlays made in the course of the contest be- comes unnecessary. By basing their analyses on competitive dissipation, contributors to the rent seeking literature (see the review by Robert Tollison, 1982) have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regu- lation. Similarly, in the trade-theoretic literature where the rights contested are to quota premia or revenues from trade taxes (Krueger, 1974; Bhagwati

Political influence motives and the choice between tariffs and quotas

Abstract Tariffs and quotas are not symmetric under a variety of circumstances. This paper pursues the implications of one such circumstance — domestic market power — for the political choice of protectionist instrument in the context of a political support maximization model. Tariffs dominate quotas in the political model in the absence of revenue seeking motives. In the presence of revenue seeking, ambiguity arises but limits can be placed on the range of tariff or quota levels. Also, some welfare implications emerge.

Multinational Firms, Political Competition, and International Trade Policy

This paper considers how the presence of multinational firms influences international trade policy that is determined as the outcome of political competition. Multinational firms have plants to protect in all policy jurisdictions and, hence, are more protectionist than national firms that at least have an interest in free trade in export markets. Nonetheless, because of changed incentives for firms to provide political support for free-trade and protectionist candidates, an increased multinational presence via either merger or direct foreign investment has a liberalizing influence on trade policy. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Unemployed immigrants and voter sentiment in the welfare state

Abstract Adverse voter sentiment can arise when immigrants are unemployed and receive tax-financed income transfers. The explanation for unemployment however determines the consequences for the local population, and an efficiency-wage explanation for unemployment is consistent with mutual benefit to national workers and employers from the presence of unemployed immigrants receiving tax-financed income transfers. The mutual benefit requires credible labor-market disciplining through job offers to immigrants and willingness of immigrants to accept job offers. Acceptance of job offers results in displacement in employment of national workers by immigrants, which can compromise the effectiveness of efficiency wages as a counter to anti-immigrant voter sentiment in the welfare state.

Greens, Supergreens, and International Trade Policy: Environmental Concerns and Protectionism

The objective of this paper is to investigate how environmental interests might influence the determination of international trade policy when production or consumption of an industry’s product has an adverse environmental impact. We assume that first-best environmental instruments are not available; our focus on trade policies as the sole instruments of intervention thus places policy choice in at least a second-best world. Environmental interests are a third party, additional to the traditional coalitions that have an interest in influencing trade policies. The traditional protagonists, who determine their policy positions with reference to personal economic gain, base their political actions on how trade policies affect profits and incomes. Environmentalists are, however, ostensibly motivated by “purer” concerns than personal gain, and would view themselves as taking altruistic positions that derive from “care for the benefit of mankind” where markets have failed. The principal general conclusion is that environmentalists need to consider carefully the underlying consistency between their environ mental objectives and their position on trade policy, in particular since there are strategic considerations involved which make the environmentalists potential bedfellows of interests that have less pure objectives in influencing trade policy than the environmentalists impute to themselves.

Embargo threat, learning and departure from comparative advantage

Abstract This paper extends the current analysis of trade embargo threats, initiated by Bhagwati and Srinivasan, Mayer, and others using general-equilibrium analysis, to a situation where there is the possibility of lowering the future cost of production of the potentially embargoed good as a result of learning-by-doing.

Protectionist policies as the regulation of international industry

Concluding remarksThe political feasibility of protectionist policies that regulate international industry derives from the absence of overt collusion among domestic import-competing producers. The regulation of international industry cannot be explicit since governments would thereby be perceived to be approving (or instigating) international collusion. Hence, voluntary export restraints have been popularly presented with a focus on the difficulties confronted by domestic import-competing producers and a de-emphasis on the mutual gains to domestic and foreign producers from monitoring by a foreign government of a restrictive export cartel arrangement. Similarly, trigger-price mechanisms have popularly been explained in terms of the need for anti-dumping measures to preserve ‘fair’ competition. Likewise, the involuntary export tax derived in the first instance from an administratively validated (but, as demonstrated by Kalts econometric analysis, contentious) complaint of ‘unfair’ foreign competition. Voluntary export restraints, trigger-price mechanisms, and involuntary export taxes are however protectionist devices, the beneficiaries of which can transcend national jurisdictions, and which have in common the characteristic that the gains to domestic industry interests derive from the regulation of foreign competitors.

Why Political Culture Should Be in the Lexicon of Economics

This editorial introduction sets out the case for political culture as a useful explanatory concept for understanding the diversity in economic policy decisions made by governments in different societies.

Pricing and Depletion of an Exhaustible Resource When There is Anticipation of Trade Disruption

This paper considers pricing and depletion of an exhaustible nonrenewable resource in an economy wherein domestic consumption is provided for by supplementing extraction from the economys own resource stock with imports, the future supply of which is not assured. The socially optimal response to threat of trade disruption is a more conservationist depletion program for the domestic resource stock than would be called for, if import supplies were assured to persist. Competitive domestic firms adopt the socially optimal conservationist program. However, firms anticipating domestic market power after the disruption of import supplies are revealed to overextract the domestic resource stock.

The World Bank and the persistence of poverty in poor countries

Abstract William Easterly has written a book about why extensive development assistance over the course of decades failed to alleviate poverty in poor countries. As an economist at the World Bank, Easterly observed how resources and advice provided by the Bank failed to improve the lives of the poor in poor countries. Easterly considers different explanations for the development failures. He places the blame for persistence of poverty in poor countries on governments and political elites, who use their poor as hostages to personally benefit from aid resources and debt relief.