A Game theoretic analysis of tariffs, dynamic inconsistency, resource conservation, and trade
Abstract
Batabyal and Beladi (2004) have used a game model to study trade in a renewable resource
between a single buyer and a single seller. The buyer uses a unit tariff to obliquely encourage
conservation of the renewable resource and the entire harvest from the resource is exported to the
importing nation. In this setting, it is shown that the efficacy of the unit tariff in promoting
conservation depends crucially on whether harvesting costs are stock dependent or independent.
When harvesting costs are stock independent (dependent), the optimal open loop unit tariff is time
consistent (inconsistent). Does this result hold when the buyer and the seller consume a portion of
the harvest from this resource? We show that the Batabyal and Beladi (2004) result holds even when
there is domestic consumption of a portion of the harvest in the exporting country. We conclude by
discussing the implications of this finding for renewable resource conservation in general.