Tuesday, November 22, 2011
Posted by D. Daniel Sokol
Kenji Fujiwara (Kwansei Gakuin University) and Ngo Van Long (McGill University) discuss Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly.
ABSTRACT: Formulating a dynamic game model of a world exhaustible resource market, this paper studies welfare implications of Stackelberg leaderships for an individual country and the world. We overcome the problem of time-inconsistency by imposing a credibility condition" on the Markovian strategy of the Stackelberg leader. Under this condition, we show that the presence of a global Stackelberg leader leaves the follower worse o relative to the Nash equilibrium. Moreover, the world welfare is highest in the Nash equilibrium as compared with the two Stackelberg equilibria.