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Differential games approach to trade with exhaustible resources

Author

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  • Tamasiga, Phemelo
  • Bondarev, Anton

Abstract

The paper presents a model of world economy with two countries where one of them dubbed home sells the exhaustible resource to final producers in both countries, which compete at the final goods market. The interaction between final producers is reached via the sticky price mechanics, whereas price continuously adjusts to produced final product quantities. Production technology in both countries includes the resource as an essential input plus the variety of intermediate products. We demonstrate how opening up to trade of the exhaustible resource may be beneficial for the home economy by promoting technical change and capital accumulation via increased resource rents and relative factor prices movements. This leads to the increase in social welfare due to taste for variety and fosters structural change in the home country.

Suggested Citation

  • Tamasiga, Phemelo & Bondarev, Anton, 2014. "Differential games approach to trade with exhaustible resources," Working papers 2014/14, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2014/14
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    File URL: https://edoc.unibas.ch/61332/1/20180306163339_5a9eb4d33e461.pdf
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    References listed on IDEAS

    as
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    6. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-1164, September.
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    More about this item

    Keywords

    structural change; resource economics; international trade; differential games;

    JEL classification:

    • F1 - International Economics - - Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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