DP8726 | The Dracula Effect: Voter Information and Trade Policy

Publication Date

01/12/2011

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Abstract

Trade barriers cause substantial deadweight losses, yet they enjoy surprising voter support. We develop an electoral model that accounts for this puzzling popularity of protectionism. Producers have incentives to acquire information about their own sector, while consumers do not. As a result, trade barriers are popular because they are disproportionately noticed by their beneficiaries. In equilibrium, politicians give every sector positive protection. This protectionist bias induces Pareto inefficiency if public information is too limited. Our model predicts a Dracula Effect: trade policy for an industry is less protectionist when public awareness of it is greater. We test this prediction empirically across U.S. manufacturing industries, exploiting the timing of industrial accidents relative to other newsworthy events as a source of exogenous variation in media coverage of each sector. As predicted by our theory, industries whose accidents occur on slow news days subsequently enjoy lower non-tariff barriers.