The Theory of Raising Rivals’ Costs and Evidence from the International Labour Organisation

26 Pages Posted: 1 Jun 2009

See all articles by Bernhard Boockmann

Bernhard Boockmann

ZEW – Leibniz Centre for European Economic Research; Institute for Applied Economic Research (IAW); IZA Institute of Labor Economics

Roland Vaubel

University of Mannheim - School of Economics (VWL)

Abstract

The strategy of raising rivals’ costs may be adopted by firms in a market, a cartel or interest group or by political majorities in a federal state or international organisation. We provide a first survey and formal exposition of the theory and present examples for each of these applications. In an international cross-section analysis using unpublished data for the period 1980–98, we explain roll-call voting of government representatives in ILO committees drafting international labour standards. Using four different indices of regulation and country samples, we find that governments vote for tighter standards if labour regulation is high in their own country. Our evidence rejects the hypothesis of Brown, Deardorff and Stern that countries exporting low-skill labour-intensive products vote for ILO standards in order to restrict their own supply and increase their terms of trade. As expected, left-party governments vote more in line with labour unions than other governments do. Domestic regulation has a considerably larger effect on voting if the convention in question would raise labour costs in ILO member states. This indicates that highly regulated countries try to raise others’ costs.

Suggested Citation

Boockmann, Bernhard and Vaubel, Roland, The Theory of Raising Rivals’ Costs and Evidence from the International Labour Organisation. World Economy, Vol. 32, Issue 6, pp. 862-887, June 2009, Available at SSRN: https://ssrn.com/abstract=1411424 or http://dx.doi.org/10.1111/j.1467-9701.2009.01173.x

Bernhard Boockmann (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+621 1235 156 (Phone)
+621 1235 225 (Fax)

Institute for Applied Economic Research (IAW) ( email )

Ob dem Himmelreich 1
Tubingen, 72074
Germany

HOME PAGE: http://www.iaw.edu

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Roland Vaubel

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

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