On Capturing Rent from a Non-Renewable Resource International Monopoly: A Dynamic Game Approach
38 Pages Posted: 27 Dec 2005
Date Written: December 21, 2005
In this paper we model the case of an international non-renewable resource monopolist as a dynamic game between a monopolist and n importing countries governments, and we investigate whether a tariff on resource imports can be advantageous for the consumers of the importing countries when the monopolist sets the price and the importing countries governments act in a non-cooperative way. We find that a tariff is advantageous for the consumers even when there is not commitment to the trade policy although the part of the rent that can be reaped by the importing countries decreases substantially with the number of importing countries. The optimality of the tariff in our dynamic game is explained by the fact that through the tariff the governments of the importing countries can influence the dynamics of the accumulated extractions and hence the extraction costs and the evolution of the monopolist price.
Keywords: tariffs, non-renewable resources, depletion effects, price-setting monopolist, differential games, linear strategies, Markov-perfect Nash equilibrium
JEL Classification: C73, D41, D42, F02, H20, Q38
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