Home bias in preferences and the political economics of agricultural protection

Abstract

Some consumers are willing to pay extra for food if it is of domestic origin. This paper theoretically examines the consequences of such home biased behavior for agricultural policy, assuming that the policy is decided by the median voter. The analysis is conducted in the framework of a small open economy, with a Ricardian production structure. Consumers differ with respect to how much extra they are willing to pay for a domestically produced agricultural good. For a tariff we find that, if there would be some home biased choices (no matter how few) in a laissez-faire regime, the political equilibrium will imply a strictly positive tariff. This tariff is high if the productivity in the agricultural sector of this country is low. A political equilibrium with a strictly positive subsidy requires stronger home bias than a tariff.