Working Paper: CEPR ID: DP344
Authors: Larry Karp; David M Newbery
Abstract: Open-loop Nash extraction plans of exhaustible resource producers (in which producers take the plans of others as given) are time-consistent, but the normal specification of the open-loop import plans of countries with market power (in which countries take the import tariffs of other importers as given) are normally time-inconsistent. The paper shows why, and derives time-consistent, open-loop Nash tariffs in a natural formulation of the problem. The two tariffs can be readily computed and compared, and differ except for a special class of import demands. The time paths of tariffs and the welfare cost of an inability to commit are calculated for a dominant importer. The welfare costs are small if its market share is below one half.
Keywords: time consistency; nash game; oil import tariff; exhaustible resources
JEL Codes: 026; 422; 720
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| oil import tariffs (Q37) | market prices (P22) |
| open-loop Nash extraction plans (C72) | market prices (P22) |
| market power (L11) | tariff setting (L11) |
| current tariffs (F19) | future market conditions (G13) |
| market conditions (P42) | tariff adjustments (F13) |
| inability to commit to future tariffs (F13) | current supply and pricing strategies (D49) |
| optimal tariff (H21) | rate of interest (E43) |