Giacomo Ponzetto

April 30th, 2019

"The Dracula Effect: Voter Information and Trade Policy"

Abstract:

Protectionism generates deadweight losses, yet it enjoys puzzling popular support. At the same time, trade barriers seem to decline with public information about trade policy. We develop an electoral model that explains both facts and predicts the pattern of protection across industries. In our framework, each agent endogenously acquires more information about his sector of employment. As a result, voters support protectionism because they learn more about the trade barriers that help them as producers than those that hurt them as consumers. In equilibrium, endogenous information asymmetry induces a universal, Pareto-inefficient protectionist bias. Our theory predicts a "Dracula Effect:" trade policy for an industry is less protectionist when there is more public information about it. We test this prediction empirically across manufacturing industries in the United States, exploiting the timing of industrial accidents relative to more newsworthy events as a source of plausibly exogenous variation in media coverage of a sector. Consistent with our theory, we find that industries whose accidents occur on slow news days subsequently enjoy lower non-tariff barriers.