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Article
Time Consistent Export Quotas in an Oligopolistic World Market
Journal of International Economics (2002)
  • Jean-Philippe Gervais, Laval University
  • Harvey E Lapan, Iowa State University
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.

Keywords
  • Time Consistency,
  • Export Quotas,
  • Precommitment,
  • Forward Contracts
Disciplines
Publication Date
March, 2002
Citation Information
Jean-Philippe Gervais and Harvey E Lapan. "Time Consistent Export Quotas in an Oligopolistic World Market" Journal of International Economics Vol. 56 Iss. 2 (2002)
Available at: http://works.bepress.com/jp_gervais/11/