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Time Consistent Export Quotas in an Oligopolistic World Market

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  • Gervais, Jean-Philippe
  • Lapan, Harvey E.

Abstract

We investigate the strategic behavior between exporting countries that face endogenous terms of trade on the world market. In a non-cooperative setting, if production decisions occur before consumption decisions, the ex-ante optimal export quota is not time consistent as the ex-post elasticity of the residual foreign import demand curve is lower than the ex-ante elasticity. However, we show that the exporters? inability to irrevocably commit to their quota may be welfare superior to the precommitment solution. If exporters can sell forward a proportion of their exports before production decisions are made, they will do so even though, in equilibrium, it may decrease welfare compared to a situation in which forward markets do not exist. Moreover, the equilibrium with forward markets is welfare inferior to the commitment equilibrium for exporters.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 5186.

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Date of creation: 01 Mar 2002
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Publication status: Published in Journal of International Economics, March 2002, vol. 56 no. 2, pp. 445-463
Handle: RePEc:isu:genres:5186

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Web page: http://www.econ.iastate.edu
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  1. Lapan, Harvey E, 1988. "The Optimal Tariff, Production Lags, and Time Consistency," American Economic Review, American Economic Association, vol. 78(3), pages 395-401, June.
  2. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, And International Economic Institutions," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 519-562, May.
  3. Tornell, Aaron, 1991. "Time Inconsistency of Protectionist Programs," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 963-74, August.
  4. Just, Richard E & Schmitz, Andrew & Zilberman, David, 1979. "Price Controls and Optimal Export Policies under Alternative Market Structures," American Economic Review, American Economic Association, vol. 69(4), pages 706-14, September.
  5. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
  6. Donald J. Wright, 1995. "Incentives, Protection, and Time Consistency," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 929-38, November.
  7. Corden, W.M., 1984. "The normative theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 2, pages 63-130 Elsevier.
  8. Larry Karp & David M. Newbery, 1992. "Dynamically Consistent Oil Import Tariffs," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 1-21, February.
  9. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
  10. Staiger, Robert W. & Tabellini, Guido, 1989. "Rules and discretion in trade policy," European Economic Review, Elsevier, vol. 33(6), pages 1265-1277, July.
  11. Karp, Larry & Perloff, Jeffrey M, 1993. "Why Industrial Policies Fail: Limited Commitment," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt8ss076xw, Department of Agricultural & Resource Economics, UC Berkeley.
  12. Maskin, Eric S & Newbery, David M, 1990. "Disadvantageous Oil Tariffs and Dynamic Consistency," American Economic Review, American Economic Association, vol. 80(1), pages 143-56, March.
  13. Karp, Larry & Paul, Thierry, 1998. "Labor adjustment and gradual reform: when is commitment important?," Journal of International Economics, Elsevier, vol. 46(2), pages 333-362, December.
  14. Rodriguez, Carlos Alfredo, 1974. "The non-equivalence of tariffs and quotas under retaliation," Journal of International Economics, Elsevier, vol. 4(3), pages 295-298, August.
  15. Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May.
  16. Brainard, S Lael, 1994. "Last One Out Wins: Trade Policy in an International Exit Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 151-72, February.
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