On the Endogenous Choice between Protection and Promotion

Authors


D. Mitra Department of Economics, Florida International University, Miami, FL 33199, USA.mitrad@fiu.edu

Abstract

In a model of strategic interaction between firms in lobbying activity, I show that capitalists might prefer tariffs (protection) to production subsidies (promotion). This is due to the congestion problem arising from the government's convex welfare costs of providing subsidies as opposed to both the free-rider problem and the congestion problem acting in opposite directions in the case of tariffs. If an industry association exists, coordination can be achieved when lobbying for tariffs, but not in the case of production subsidies.

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