The Basic Elements of the PoliticalEconomic Analysis Let's take a look at the political process that leads to a decision about whether or not to impose a tariff on imports of a good, say, socks. As we have seen in previous chapters, imposing the tariff will have pa $213 different effects on the well-being of different groups in the country, with both winners and losers. In addition, we presume that the tariff would cause some economic inefficiencya decrease in national well-being because the losers lose more than the winners gain. When will such a tariff be enacted? Why? There are a number of key elements in our political-economic analysis: 1. The size of the gains for the winners from protection, and how many individuals are in the group of winners. Let's call the total gains B p , and presume that this is the producer surplus gained from securing government protectionthe same thing as area a in diagrams like Fignm 3,4. N p is the number of individuals beneting from the protection. 2. The size of the losses for the losers from protection, and how many individuals are in the group of losers. In the political fight, they gain by defeating the tariff. Their total gains are E c , which we presume to be at least as large as areas a + b + d in Figure 3.4. (Consumers may not view the tariff revenue area c as a loss to them if the government uses the revenue to reduce other consumer taxes or spends the revenue on projects valued by the consumers.) N c is the number of individuals losing from protection (gaining from defeating protection). 333 3. Individuals' reasons for taking positions for or against protection. We presume that direct gains and losses of well-being ( B p and B c ) are reasons for taking positions. There may be other reasons. One is sympathy for groups who are suffering losses. Another is ideology or other closely held core beliefs about politics and economics. 4. Types of political activities and their costs. Individuals (and groups of individuals sharing a common interest) can engage in a range of different political activities. Assuming that the country has elections or referendums, individuals can vote. Individuals can themselves engage in lobbying of their govemment officials, in which the individuals provide information on their position, or they can hire others to lobby for them. Individuals can provide campaign contributions to politicians running for office. 0r individuals can provide bribes or other side payments to attempt to gain the support of government officials. The costs of these different types of political activities include both money cost and the opportunity cost of any time or other efforts used in the activity. 5. Political institutions and the political process. We will closely examine two types of political processes: rst, direct voting on the tariff by all individuals and, second, elected representatives voting on the tariff. These seem most relevant to a democratic system like that used in most industrialized and many developing countries. (Other possibilities include a single decision-maker or decision-making by an appointed committee of experts.)