TRADE POLICY AND TIME CONSISTENCY IN AN OLIGOPSONISTIC WORLD MARKET

This paper investigates the strategic behavior between countries that have purchasing power on the world market for a certain good. Tariffs and quotas are not equivalent protection instruments in this oligopsonistic market. Policy active importers would be better off by colluding and setting their trade instrument cooperatively. In a non-cooperative setting, if production decisions occur before consumption decisions, the ex-ante optimal policy is not time consistent because the ex-post elasticity of the residual foreign export supply curve is lower than the ex-ante elasticity. However, we show that the importers' inability to irrevocably commit to their trade instrument may be welfare superior to the precommitment solution. The negative welfare implication of non-cooperative behavior may be balanced off by the welfare effect of the ex-port elasticity. A numerical example is proposed to provide insights on the theoretical results.


Issue Date:
1998
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/18239
Total Pages:
30
JEL Codes:
F13; Q17; D4
Series Statement:
Staff Paper 310




 Record created 2017-04-01, last modified 2017-04-04

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