DP344 Time-Consistent Oil Import Tariffs

Author(s): Larry Karp, David M G Newbery
Publication Date: November 1989
Keyword(s): Exhaustible Resources, Imports, Natural Resources, Tariffs
JEL(s): 411, 422, 721
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=344

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.