The political economy of international factor mobility

We model the endogenous determination of policy towards international factor mobility. In a common agency setting, domestic interest groups bid for protection from the government and the incumbent politicians maximize a welfare function that depends both on domestic voters’ welfare and contributions collected. We characterize equilibrium policies in the price space and show how the degree of complementarity among inputs determines the outcome. We establish a similar result for quotas, allowing for partial rent capturing. For the strategic environment under consideration, we also establish a general equivalence result between tariffs and quotas if capturing is complete.