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A Stackelberg Game Model of Trade in Renewable Resources with Competitive Sellers

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  • Amitrajeet A. Batabyal
  • Hamid Beladi

Abstract

We model international trade in renewable resources between a single buyer and competitive sellers as a Stackelberg differential game. The buyer uses unit and ad valorem tariffs to indirectly encourage conservation of the renewable resource under study. First, we show that the efficacy of these trade policy instruments in promoting conservation depends fundamentally on whether harvesting costs are stock dependent or independent. When harvesting costs are stock independent, the optimal open-loop tariffs are dynamically consistent. In contrast, when harvesting costs are stock dependent, the optimal open-loop tariffs are dynamically inconsistent. Secondly, we point out that whether the terminal value of the resource stock is higher with the stock independent or the stock dependent cost function cannot be resolved unambiguously. Thirdly, we show that it does not make sense for the buyer to use both tariffs simultaneously. Finally, we discuss the implications of these and other findings for renewable resource conservation in general. Copyright � 2006 The Authors; Journal compilation � Blackwell Publishing Ltd. 2006.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 1 (02)
Pages: 136-147

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Handle: RePEc:bla:reviec:v:14:y:2006:i:1:p:136-147

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Cited by:
  1. Keutiben, Octave, 2014. "On capturing foreign oil rents," Resource and Energy Economics, Elsevier, vol. 36(2), pages 542-555.
  2. Sibel Sirakaya & Stephen J. Turnovsky & Nedim M. Alemdar, 2009. "Trade, Growth, and Environmental Quality ," Review of International Economics, Wiley Blackwell, vol. 17(5), pages 906-926, November.
  3. Van Gorder, Robert A. & Caputo, Michael R., 2010. "Envelope theorems for locally differentiable open-loop Stackelberg equilibria of finite horizon differential games," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1123-1139, June.

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