Do optimal non-renewable resource tariffs suffer from dynamic inconsistency?

Kenneth Lyon and D. Lee

No 2000-27, Working Papers from Utah State University, Department of Economics

Abstract: In this paper we have examined optimal tariffs for non-renewable natural resources in the setting of imperfect competition. We do this because Larry Karp (1984, p. 74) states that, “If the buyer attempts to exert market power, he is constrained by the dynamic optimization behavior of the seller and does not face a standard control problem.” We show that when extraction costs are a function of the remaining stock of the resource, the costate variable can be separated into a scarcity effect and a cost effect. Karp concludes that the cost effect must be left with the producer; thereby, restricting the actions of the buyer. We, however, prove that it is not necessary to pay this cost effect to the producer; hence, we conclude that the monopsonist can extract all of the rent from the seller. The optimal tariff is neither dynamically time inconsistent, nor is it “Karp’s consistent tariff.”

Keywords: Optimal control problem; optimal non-renewable resource tariff; dynamic inconsistency; imperfect competition; scarcity and cost effect (search for similar items in EconPapers)
JEL-codes: H21 L20 Q30 (search for similar items in EconPapers)
Pages: 30 pages
New Economics Papers: this item is included in nep-mic and nep-tur
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repec.bus.usu.edu/RePEc/usu/pdf/ERI2000-27.pdf First version, 2000 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usu:wpaper:2000-27

Access Statistics for this paper

More papers in Working Papers from Utah State University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by John Gilbert ().