The Number of Firms and the Politics of Export Subsidy.


The purpose of this paper is to present a framework to understand that the government's implementation of export subsidy is influenced by the political pressure from the home firms which can bear the costs of forming and maintaining a lobby in order to overcome a free-rider problem associated with lobbying. When the number of the foreign firms is large in comparison with that of the home firms, the home firms can organize a lobby group more easily and lobby for higher export subsidy. The implementation of politically optimal export subsidy can make the domestic social welfare far worse than when the free trade is maintained by a multilateral agreement which prohibit export subsidies.

keywords: lobby formation, political contribution, export subsidy, multilateral agreements

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