Time consistent export quotas in an oligopolistic world market |
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Authors: | Jean-Philippe GervaisHarvey E Lapan |
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Institution: | a CRÉA and Department of Agricultural Economics and Consumer Studies, 4415 Comtois, Laval University, Ste-Foy, QC, Canada G1K 7P4 b Department of Economics, 283 Heady Hall, Iowa State University, Ames, IA 50011, USA |
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Abstract: | We investigate the strategic behavior between exporting countries that face endogenous terms of trade on the world market. In a non-cooperative setting, if production decisions occur before consumption decisions, the ex-ante optimal export quota is not time consistent as the ex-post elasticity of the residual foreign import demand curve is lower than the ex-ante elasticity. However, we show that the exporters’ inability to irrevocably commit to their quota may be welfare superior to the precommitment solution. If exporters can sell forward a proportion of their exports before production decisions are made, they will do so even though, in equilibrium, it may decrease welfare compared to a situation in which forward markets do not exist. Moreover, the equilibrium with forward markets is welfare inferior to the commitment equilibrium for exporters. |
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Keywords: | Time consistency Export quotas Precommitment Forward contracts |
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