A game theoretic analysis of tariffs, dynamic inconsistency, resource conservation, and trade

Abstract

Batabyal and Beladi (2004) have used a game model to study trade in a renewable resource between a single buyer and a single seller. The buyer uses a unit tariff to obliquely encourage conservation of the renewable resource and the entire harvest from the resource is exported to the importing nation. In this setting, it is shown that the efficacy of the unit tariff in promoting conservation depends crucially on whether harvesting costs are stock dependent or independent. When harvesting costs are stock independent (dependent), the optimal open loop unit tariff is time consistent (inconsistent). Does this result hold when the buyer and the seller consume a portion of the harvest from this resource? It is shown that the Batabyal and Beladi result holds even when there is domestic consumption of a portion of the harvest in the exporting country. The study concludes by discussing the implications of this finding for renewable resource conservation in general.

Acknowledgements

I thank Mark Taylor and participants in (a) the June 2004 CAES-NAREA Workshop in Halifax, (b) the September 2004 RSAI Japan Section Annual Meeting in Tokyo, and (c) the November 2004 RSAI NARSC 51st Annual Conference in Seattle for their comments on a previous version of this paper. In addition, I acknowledge financial support from the Gosnell endowment at RIT. The usual absolution applies.