Pareto-Efficient Trade and Domestic Policies under International Lobbying Activities

This paper examines in a two-country model under what conditions political donations establish Pareto-efficient trade and domestic policies. I consider two cases for international lobbying activities: multilateral political donations and international special interest groups. The analysis shows that Pareto-efficient policies are employed when each ruling party values the amount of cross-border donations and the sum of domestic welfare and domestic donations with the same weight in its objective function in the case of multilateral political donations, and when each ruling party only considers donations as the component of its objective function in the case of international special interest groups.