ABSTRACT

An increase in the tariff rate will raise the domestic relative price of the import competing good and hence will increase the rent to the specific factor employed in the import competing sector. The import competing sector, therefore, always has an incentive to spend resources in lobbying the government for an imposition of or an increase in the tariff rate on the imports of the import-competing good. This chapter describes the existence result obtained by J. S. Coggins, et al., onto a productive political economy. It shows that even if the government is responsive to the lobbying pressures of the interest groups, there exists at least one non-trivial Nash equilibrium of the political economy. One of the fundamental assumptions of the noncooperative game is that the players make decisions in isolation. Lobbying activities may take different forms – for example, mobilizing public support to the government or organization of a street demonstration against the government, or an outright bribe.