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How Does Free Trade Become Institutionalized? An Expected Utility Model of the Chretien Era

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This paper seeks to go beyond the question of 'why free trade?' and pursues issues related to the tendency for controversial free trade agreements to become institutionalized. In other words, why do opponents of free trade not mobilize to overturn it? Even more puzzling, why do opposition parties, which had opposed passage of free trade in the first place, not undo liberalization undertaken by their predecessors upon coming to power? Rather than seek reversal, it is not uncommon for free trade opponents, upon assuming control of the government, to deepen liberalization initiatives, hence serving to institutionalize the very policies they had decried vigorously. Six sections make up this study. It begins with a statement of the basic puzzle and an illustration in the recent Canadian context. The second is a theoretical discussion of opposition parties and free trade. An expected utility model, based on the limits of rent-seeking, is introduced in the third section to explain institutionalized free trade. The fourth section provides the background to the case at hand, that is, the evolution of free trade as a politico-economic issue in Canada. The fifth section applies the expected utility model to the superficially puzzling case of Canadian Prime Minister Jean Chretien's dramatic about-face on the issue of trade liberalization after coming to power. Sixth, and finally, the contributions of the model are reviewed, along with directions for future research.

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  • Michael Lusztig & Patrick James, 2004. "How Does Free Trade Become Institutionalized? An Expected Utility Model of the Chretien Era," University of Western Ontario, Economic Policy Research Institute Working Papers 20044, University of Western Ontario, Economic Policy Research Institute.
    • Handle: RePEc:uwo:epuwoc:20044
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