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Time consistent export quotas in an oligopolistic world market

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

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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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 56 (2002)
Issue (Month): 2 (March)
Pages: 445-463

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Handle: RePEc:eee:inecon:v:56:y:2002:i:2:p:445-463
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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