Petropoulou, Dimitra
(2007)
Information and quality in international trade and the political economy of trade protection.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis examines how information costs, minimum quality standards and electoral incentives affect international trade and trade policy choice. First, a new pairwise matching model with two-sided information asymmetry is developed to analyse the impact of information costs on endogenous network-building and matching by information intermediaries. The framework innovates by examining the role of information costs on incentives for trade intermediation, thereby endogenising the pattern of direct and indirect trade. The model is extended to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. Second, unilateral minimum quality standards are endogenously determined as the outcome of a non-cooperative standard-setting game between the governments of two countries. Cross-country externalities from the implementation of minimum quality standards are shown to give rise to a Prisoners' Dilemma structure in the incentives of policy-makers leading to inefficient policy outcomes. The role of minimum quality standards as non-tariff barriers is examined and the scope for mutual gains from reciprocal adjustment in minimum standards analysed. Asymmetric externalities make a cooperative agreement at the world optimum infeasible. Third, a new multi-jurisdictional political agency model is developed to analyse electoral incentives for trade protection in an electoral college. A unique equilibrium is shown to exist where political incumbents build a reputation for protectionism through their policy decisions in their first term of office. A spatial dimension is introduced that shows how trade policy incentives hinge on the distribution of swing voters across decisive, swing states. The empirical analysis augments a benchmark test of the "Protection for Sale" mechanism to include a measure of how industries specialise geographically in swing and decisive states. The findings lend support to the theory.
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