Lobbying for Tariff Protection, International Technology Licensing and Consumer Surplus

Abstract

Abstract It is well known that the protectionist view for tariff protection can be justified if the tariff induced international technology licensing benefits the consumers. We show that this view may not hold true if the domestic firm lobbies for tariff protection. If lobbying determines tariff following the “tariff-function formation” approach, lobbying reduces consumer surplus by reducing the incentive for licensing. However, if lobbying determines tariff following the “political contribution” approach, lobbying increases the incentive for licensing but creates an ambiguous effect on consumer surplus. Hence, whether the protectionist view for tariff protection can be justified under international technology licensing depends on the way the tariff rates are determined.