Spurious Injury as Indirect Rent Seeking: Free Trade Under the Prospect of Protectionism

Abstract

In the literature on directly unproductive profit seeking or rent seeking, intervention-seeking by labor and industry groups is generally restricted to direct lobbying activity. However, import-competing producters may have an additional instrument to influence the decision to grant protection. Under well-establishaed injury criteria for protection import-competing producers have an incentive, either collectively or individually, to feign injury. To the extent that the free-rider problem can be overcome, orchestrating the appearance of injury is an intervention-seeking activity that may be complementary to DUP lobbying. When the established indicators of industry well-being include variables controlled by the prospective beneficiaries, tehrefore, free trade under prospect of protection is potentially accompanied by a concomitant spurious-injury distortion. Some of the positive and welfare implications of the theory of spurious injury are investigated in both a partial equilibrium framework and in the Heckscher-Ohlin model.