A Game Model of International Trade, Transport Costs, Invasive Species, and Protocol Compliance
Transportation Research Part D, Vol. 46, pp. 267-272, 2016
Posted: 2 May 2016
There are 2 versions of this paper
A Game Model of International Trade, Transport Costs, Invasive Species, and Protocol Compliance
Date Written: April 29, 2016
Abstract
We study the duopolistic interaction between two monopolists located in two different countries who sell an imperfect substitute good in two markets. The traded good is transported between the two nations on ships using solid wood packing materials (SWPMs) and hence the presence of one or more invasive species is a problem. We use a game model to analyze this interaction in three steps. First, we study the benchmark case of autarky or no trade between the two nations. Second, we introduce transport costs and then study the effect of free trade on the profits of the two monopolists. Finally, we suppose that invasive species are present in the SWPMs. This fact requires compliance with an environmental protocol. We model this compliance by increasing the transport costs associated with trade and then demonstrate that a version of the so called Porter hypothesis holds. In other words, we show that compliance with a cost increasing environmental protocol can give rise to higher profits for the two monopolists under consideration.
Keywords: Compliance, International Trade, Invasive Species, Transport Cost, Porter Hypothesis
JEL Classification: F12, Q52, Q56
Suggested Citation: Suggested Citation