On the impact of trade in a common property renewable resource oligopoly

Abstract

We consider a common-pool renewable resource differential game. We show that within this dynamic oligopolistic framework, Free Trade may lead to a lower discounted sum of consumer surplus and of social welfare than Autarky. Trade restrictions may be supported based on both resource conservation and efficiency motives. A priori, this finding is not straightforward; a move from Autarky to Free Trade causes industry output to first increase and then decrease over time. While producers are shown to be always worse off under Free Trade than under Autarky, consumers are better off in the short run and worse off in the long run. We determine the conditions under which the long-run effects outweigh the short-run effects of trade, leading to a decrease in the discounted sum of not only consumer surplus, but also social welfare.