Policy Choice: Theory and Evidence from Commitment via International Trade Agreements
Nuno Limão and Patricia Tovar Rodriguez ,
( 85 )
Journal of International Economics

Why do governments employ inefficient policies when more efficient ones are available for the same purpose? We address this puzzle in the context of redistribution toward special interest groups (SIGs) by focusing on a set of important policies: tariffs and non-tariff barriers (NTBs). In our policy choice model a government can gain by committing to constrain tariffs through international agreements even if this leads to the use of less efficient NTBs; commitment has political value because it improves the bargaining position of a government that is weak relative to domestic SIGs.

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