Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly
Formulating a dynamic game model of a world exhaustible resource market, this paper studies welfare implications of Stackelberg leaderships for an individual country and the world. We overcome the problem of time-inconsistency by imposing a \credibility condition" on the Markovian strategy of the Stackelberg leader. Under this condition, we show that the presence of a global Stackelberg leader leaves the follower worse o relative to the Nash equilibrium. Moreover, the world welfare is highest in the Nash equilibrium as compared with the two Stackelberg equilibria.
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