A Differential Game Theoretic Analysis of International Trade in Renewable Resources

Abstract

We use a Stackelberg differential game to model trade in renewable resources between a monopsonistic buyer and a monopolistic seller. The buyer uses unit and ad valorem tariffs to indirectly encourage conservation of the resource under study. First, we show that the efficacy of these tariffs in furthering conservation depends essentially on whether harvesting costs are stock dependent or independent. Second, we study the impacts that alternate biological growth functions and the dependence of welfare in the buying country on the resource stock have on the optimal tariffs. Third, we note that because the simultaneous use of both tariffs does not render one tariff extraneous, it makes sense for the buyer to use both tariffs concurrently. Finally, we show that when the buyer uses both tariffs simultaneously, she can force the monopolistic seller to behave competitively.

Keywords: Conservation, International Trade, Renewable Resource, Stackelberg Game, Tariff

JEL Classification: F12, F18, Q20