Externalities, Market Power and Resource Extraction

Abstract

This paper analyzes the effect of market power in a model with dynamic and biological externalities. When several countries harvest fish in international waters the evolution of fish population is affected by their joint action, thus, generating a biological and a dynamic externality. If there is trade in fish, the market-clearing prices depend on the harvesting and consumption decision made in every country. Therefore, market-clearing prices generate another type of interdependence. The planners make their policy decision by taking account of various externalities. We find a subgame perfect Cournot-Nash equilibrium and the conditions under which it may be efficient. We also study the role of different externalities in generating inefficiency.

JEL Classification: C72, D90, Q22