Brainard, S. Lael and Verdier, Thierry
The eolitical economy of declining industries: senescent industry collapse revisited
Journal of International Economics, 42, (1-2), . (doi:10.1016/S0022-1996(96)01432-8).
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Many observers have noted a strong tendency for protection, once it is instituted, to persist over time. This paper first shows that persistent protection arises whenever lobbying is an alternative to costly adjustment. With endogenous protection, the level of tariffs is an increasing function of past tariffs: the more an industry lobbies, the greater the current protection it receives and the less it adjusts, and the less the industry adjusts the more effective it is as a lobby in the future. When the costs of lobbying and adjustment are fully variable, declining industries contract more slowly over time and never fully adjust. However, the paper shows that adding a fixed cost of lobby formation or maintenance is sufficient to generate an endogenous collapse of protection, such as that predicted by Cassing and Hillman (1986, American Economic Review 76, 516–523), in which an industry abruptly terminates its lobbying and loses its protection. Finally, the paper examines the well-documented bias against growing industries in the lobbying process.
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