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

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

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

Batabyal, Amitrajeet A. and Nijkamp, Peter, A Game Model of International Trade, Transport Costs, Invasive Species, and Protocol Compliance (April 29, 2016). Transportation Research Part D, Vol. 46, pp. 267-272, 2016, Available at SSRN: https://ssrn.com/abstract=2772667

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology ( email )

Department of Economics, RIT
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Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

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Netherlands
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+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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