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Optimal Tariffs on Exhaustible Resources : The Case of Quantity Setting

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  • Kenji Fujiwara
  • Ngo Van Long

Abstract

Constructing a dynamic game model of trade of an exhaustible resource, this paper compares feedback Nash and Stackelberg equilibria when the exporting country sets quantity rather than price. We consider two different leadership scenarios: leadership by the importing country, and leadership by the exporting country. We numerically show that as compared to the Nash equilibrium, both countries are better off if the importing country is a leader, but that the follower is worse off if the exporting country is a leader. Consequently, the world welfare is highest under the importing country's leadership and lowest under the exporting country's leadership. On construit un modèle d'un jeu dynamique d'échange en ressource non-renouvelable sous l'hypothèse que le pays exportateur détermine la quantité au lieu du prix. L'objectif est de comparer l'équilibre de Nash avec les équilibres de Stackelberg. Dans un premier temps, c'est le pays importateur qui est le leader. Dans un deuxième temps, le pays exportateur assume le leadership. On démontre numériquement que, par rapport à l'équilibre de Nash , le niveau de bien-être des deux pays est plus élevé sous l'équilibre de Stackelberg dans le cas où l'importateur est le leader. Dans le cas où le pays exportateur est le leader, le niveau de bien-être du pays importateur est moins élevé que celui de l'équilibre de Nash. Le bien-être du monde entier dans le cas du leadership du pays importateur est plus élevé que dans le cas opposé.

Suggested Citation

  • Kenji Fujiwara & Ngo Van Long, 2012. "Optimal Tariffs on Exhaustible Resources : The Case of Quantity Setting," CIRANO Working Papers 2012s-02, CIRANO.
  • Handle: RePEc:cir:cirwor:2012s-02
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    File URL: http://www.cirano.qc.ca/files/publications/2012s-02.pdf
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    References listed on IDEAS

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    1. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
    2. Kenji Fujiwara & Ngo Long, 2011. "Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly," Dynamic Games and Applications, Springer, vol. 1(4), pages 479-497, December.
    3. Karp, Larry, 2008. "Taxes versus quantities for a shock pollutant with endogenous abatament costs and asymmetric information," CUDARE Working Paper Series 1064, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
    4. James L. Smith, 2009. "World Oil: Market or Mayhem?," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 145-164, Summer.
    5. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
    6. Larry Karp & Jiangfeng Zhang, 2012. "Taxes versus quantities for a stock pollutant with endogenous abatement costs and asymmetric information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(2), pages 371-409, February.
    7. Tahvonen, Olli, 1996. "Trade with Polluting Nonrenewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 1-17, January.
    8. Ngo Long & Gerhard Sorger, 2010. "A dynamic principal-agent problem as a feedback Stackelberg differential game," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(4), pages 491-509, December.
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    Cited by:

    1. Michielsen, Thomas O., 2014. "Strategic resource extraction and substitute development," Resource and Energy Economics, Elsevier, vol. 36(2), pages 455-468.
    2. Benchekroun, H. & Benchekroun, S., 2015. "Harvests' lifespan and North–South market share rivalry," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 114-124.

    More about this item

    Keywords

    dynamic game; exhaustible resource; Stackelberg leadership.; jeu dynamique; ressources non-renouvelables; leadership de Stackelberg.;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • F18 - International Economics - - Trade - - - Trade and Environment

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