On Capturing Oil Rents with a National Excise Tax Revisited

Santiago Rubio

No 2004.133, Working Papers from Fondazione Eni Enrico Mattei

Abstract: In this paper the scope of Bergstrom’s (1982) results is studied. Moreover, his analysis is extended assuming that extraction cost is directly related to accumulated extractions. For the case of a competitive market it is found that the optimal policy is a constant tariff if extraction is costless. However, with depletion effects, the optimal tariff must ultimately be decreasing. For the case of a monopolistic market the results depend crucially on the kind of strategies the importing country governments can play and on whether the monopolist chooses the price or extraction rate. For a price-setting monopolist it is shown that the importing countries cannot use a tariff to capture monopoly rents if they are constrained to use open-loop strategies, even if the governments sign a tariff agreement. This result is drastically modified if the importing countries in the tariff agreement use Markov (feedback) strategies. For a quantity-setting monopolist the nature of the game changes and the importing country governments find it advantageous to set a tariff on resource importations. Moreover, in this case the importing countries in a tariff agreement enjoy a strategic advantage which allows them to behave as a leader.

Keywords: Tariffs; Tariff agreements; Non renewable resources; Depletion effects; Price-setting monopolist; Quantity-setting monopolist; Differential games; Open-loop strategies; Linear strategies; Markov-perfect Nash equilibrium; Markov-perfect Stackelberg equilibrium (search for similar items in EconPapers)
JEL-codes: C73 D41 D42 F02 H20 Q38 (search for similar items in EconPapers)
Date: 2004-11
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