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Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly

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Abstract

Formulating a dynamic game model of a world exhaustible resource market, in this paper, we study 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 off relative to the Nash equilibrium. Moreover, the world welfare is highest in the Nash equilibrium as compared with the two Stackelberg equilibria.

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Authors and Affiliations

  1. Kwansei Gakuin University, Nishinomiya, Japan

    Kenji Fujiwara

  2. McGill University, Montreal, Canada

    Ngo Van Long

Authors
  1. Kenji Fujiwara
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  2. Ngo Van Long
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Correspondence to Kenji Fujiwara.

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Fujiwara, K., Long, N.V. Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly. Dyn Games Appl 1, 479–497 (2011). https://doi.org/10.1007/s13235-011-0036-1

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