Time Consistent Export Quotas in an Oligopolistic World Market

Jean-Philippe Gervais () and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We investigate the strategic behavior between exporting countries that face endogenous terms of trade on the world market. In a non-cooperative setting, if production decisions occur before consumption decisions, the ex-ante optimal export quota is not time consistent as the ex-post elasticity of the residual foreign import demand curve is lower than the ex-ante elasticity. However, we show that the exporters? inability to irrevocably commit to their quota may be welfare superior to the precommitment solution. If exporters can sell forward a proportion of their exports before production decisions are made, they will do so even though, in equilibrium, it may decrease welfare compared to a situation in which forward markets do not exist. Moreover, the equilibrium with forward markets is welfare inferior to the commitment equilibrium for exporters.

Date: 2002-03-01
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Published in Journal of International Economics, March 2002, vol. 56 no. 2, pp. 445-463

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