Transaction Costs and Host-Group Rivalry in Foreign Economic Policy: Evidence from Five North American Fisheries

Abstract

This article shows that the timing and nature of policies hostile to foreign direct investment stem both from the transaction costs of negotiating with different host country agencies, and from changes to domestic and international coalitions. Divided agency jurisdiction is modeled as a partial property right to the use of a resource. Host industries lacking political cohesion allow foreign firms economic opportunities and a stronger political voice. Qualitative and quantitative evidence from five fisheries in the United States and Canada confirm that the costs of negotiating with a fractured government and the opportunity to form transnational coalitions lead host countries to adopt policies that will facilitate forced divestment. These policies vary in respect to their timing and format.