The political economy of noncompliance in customs unions
Year: 2022
Type: article
Abstract: States create customs unions to accrue consumer welfare gains. Given the incentives to cheat to protect domestic firms from foreign competition, they create regulatory regimes with international courts to manage noncompliance. I develop a formal model that explains how the politics of compliance in regulatory regimes systematically distorts the welfare gains that states accrue from developing customs unions. The model predicts that regulatory regimes are most effective at enforcing compliance (i.e., at reducing trade barriers) in industries with intermediate levels of firm homogeneity in terms of productivity. In highly homogenous industries, regulatory regimes are not effective because noncompliance is minimal enough that litigation is not cost-effective; in highly heterogenous industries, regulatory regimes are not effective because courts, concerned about noncompliance with their rulings, are unlikely to rule against the defendants, deterring the plaintiffs from bringing cases. The model also predicts the downstream consequences for the performance of individual firms and consumer welfare.
Source: Journal of Theoretical Politics
Author: Joshua C. Fjelstul
Institutions: University of Geneva, University of Oslo
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,250
Funder: Emory University
OpenAlex ID: W4306681007