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Tariff Agreements And Non-Renewable Resource International Monopolies: Prices Versus Quantitites

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  • Santiago J. Rubio

    ()
    (Universitat de València)

Abstract

In this paper we model the case of an international non-renewable resource monopolist as a differential game between the monopolist and the governments of the importing countries, and we investigate whether a tariff on the resource importations can be advantageous for the importing countries. We find that the results depend crucially on the kind of strategies the importing country governments can play and on whether the monopolist chooses the price or the extraction rate. For a price-setting monopolist it is shown that the importing countries cannot use a tariff to capture monopoly rents if they are constrained to use open-loop strategies, even if the governments sign a tariff agreement. This result is drastically modified if the importing countries in the tariff agreement use Markov (feedback) strategies. For a quantity-setting monopolist the nature of the game changes and an open-loop tariff is advantageous for the importing countries. Moreover, in this case the importing countries in a tariff agreement enjoy a strategic advantage which allows them to behave as a leader.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2005-10.

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Length: 26 pages
Date of creation: Mar 2005
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2005-10

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Related research

Keywords: tariffs; tariff agreements; non-renewable resources; depletion effects; price-setting monopolist; quantity-setting monopolist; differential games; open-loop strategies; linear strategies; Markov-perfect Nash equilibrium; Markov-perfect Stackelberg equilibrium;

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References

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  1. 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.
  2. Johannes Horner & Morton I. Kamien, 2004. "Coase and Hotelling: A Meeting of the Minds," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 718-723, June.
  3. Wirl, Franz & Dockner, Engelbert, 1995. "Leviathan governments and carbon taxes: Costs and potential benefits," European Economic Review, Elsevier, vol. 39(6), pages 1215-1236, June.
  4. 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.
  5. Bergstrom, Theodore C, 1982. "On Capturing Oil Rents with a National Excise Tax," American Economic Review, American Economic Association, vol. 72(1), pages 194-201, March.
  6. Karp, Larry, 1984. "Optimality and consistency in a differential game with non-renewable resources," Journal of Economic Dynamics and Control, Elsevier, vol. 8(1), pages 73-97, October.
  7. James Brander & Slobodan Djajic, 1982. "Rent-Extracting Tariffs and the Management of Exhaustible Resources," Working Papers 468, Queen's University, Department of Economics.
  8. Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May.
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Cited by:
  1. Kenji Fujiwara & Ngo Van Long, 2011. "Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly," Discussion Paper Series 76, School of Economics, Kwansei Gakuin University, revised Sep 2011.
  2. Strand, Jon, 2011. "Strategic climate policy with offsets and incomplete abatement : carbon taxes versus cap-and-trade," Policy Research Working Paper Series 5675, The World Bank.
  3. Karp, Larry & Siddiqui, Sauleh & Strand, Jon, 2013. "Dynamic climate policy with both strategic and non-strategic agents : taxes versus quantities," Policy Research Working Paper Series 6679, The World Bank.
  4. Jon Strand, 2010. "Taxes versus Cap-and-Trade in Climate Policy when only some Fuel Importers Abate," CESifo Working Paper Series 3233, CESifo Group Munich.

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