Time-Consistent Oil Import Tariffs

Larry Karp and David M Newbery

No 344, CEPR Discussion Papers from Centre for Economic Policy Research

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: Exhaustible Resources; Imports; Natural Resources; Tariffs (search for similar items in EconPapers)
Date: 1989-11
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