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Endogenous Protection within a framework of monopolistic competition à la Dixit–Stiglitz
The author studies the determination of trade policy by considering an imperfectly competitive market. The model adopts the political process developed by Grossman and Helpman (1994), but it also takes into account a different economic structure, which is based on the Footloose Capital model. Two ne...
The author studies the determination of trade policy by considering an imperfectly competitive market. The model adopts the political process developed by Grossman and Helpman (1994), but it also takes into account a different economic structure, which is based on the Footloose Capital model. Two new appealing insights come from the consideration of monopolistic competition. Firstly, in this setting, the interest group seems to be more worried to persuade the government to set a high tariff when it can charge a low mark-up. Secondly, the initial distribution of industry might also influence the structure of protection in one economy.
