Cartel and Oligopoly Pricing of Nonreplenishable Natural Resources

This essay is concerned with the implications of these structures in markets for nonrenewable natural resources. Following Hotelling (1931) and numerous subsequent authors, we assume that the total reserves of the resource in the hands of each producer cannot be increased and are reduced by production. Demand and cost conditions, including the relevant rate of interest, are constant over time. In such a world, producers must rationally consider price or output paths over time, so that both models outlined above become non-zero sum differential games. In what follows, we examine solutions to the games implied by various assumptions

Distributing the Gains from Trade With Incomplete Information

We argue that the incomplete information which the government has about domestic agents means that tariffs become an optimal instrument to protect them from import competition. We solve for the optimal government policies. subject to the political constraint of ensuring Pareto gains from trade, the incentive compatibility constraint, and the government's budget constraint. We find that the optimal policies take the form of nonlinear tariffs, so that both buyers and sellers of the import face an effective price which exceeds its world level. We find that the tariffs are never complete, in the sense of bringing prices (or all individuals back to their initial level. Rather, it will always be possible to make some individuals strictly better off than at the initial prices, while ensuring that no persons are worse off.

A Theory of Advocates: Trading Advice for Inuence

An advocate for a special interest provides information to an uninformed planner for her to consider in making a sequence of important decisions. Although the advocate may have valuable information for the planner, it is is also known that the advocate is biased and will distort her advice if necessary to ináuence the plannerís decision. Each time she repeats the problem, however, the planner learns about the accuracy of the advocateís recommendation, mitigating some of the advocateís incentive to act in a self-serving manner. We propose a theory of advocacy to explain why planners do sometimes rely on information provided by advocates in making decisions. The interaction takes place in two stages, a cheap talk recommendation from the advocate, followed by decisions and learning by the planner. The theory predicts conditions under which an advocateís advice will be ignored and when it will ináuence a plannerís decision, when planners will prefer the advice of an advocate to the advice of a neutral adviser and, Önally, how an advocate gains ináuence with a decision maker by making his preferences for action unpredictable. Applications of our theory are used to explain why regulated enterprises are sometimes delegated authority to determine how they are monitored and why some consumers of Önancial services give Önancial advisors who beneÖt from their business such great latitude in managing their investments and Önances.Advocates, Advocacy, Learning, Cheap Talk, Dynamic Contract

Advocacy and Dynamic Delegation

An advocate for a special interest provides information to an uninformed planner for her to consider in making a sequence of important decisions. Although the advocate may have valuable information for the planner, it is is also known that the advocate is biased and will distort his advice if necessary to influence the planner's decision. Each time she repeats the problem, however, the planner learns about the accuracy of the advocate's recommendation, mitigating some of the advocate's incentive to act in a self-serving manner. We propose a theory of dynamic delegation to explain why planners do sometimes rely on information provided by advocates in making decisions. The interaction takes place in two phases, a communication phase, followed by a sequence of decisions and learning by the planner. We ∑first establish that the capability to delegate dynamically is a necessary condition for influential communication in this setting, and characterize the optimal dynamic delegation policy. Next, we show that a planner may prefer to consult an an advocate rather than a neutral adviser. Finally, we demonstrate how an advocate gains influence with a decision maker by making his preferences for actions unpredictable. Our results have implications for a variety of real world interactions including regulation, organization, and whistleblowing.Delegation, Advocates, Cheap Talk

Negotiated Trade Restrictions with Private Political Pressure

In this paper we consider a home government with political pressure to restrict trade, at the expense of foreigners. The foreign country is compensated with an income transfer, which can be thought of as a portion of the tariff revenues or quota rents. In this setting the two countries should negotiate over the level of tariff and transfer of rents, depending on the level of political pressure at home. However, if this pressure cannot be directly observed abroad, then the home country may have an incentive to claim arbitrarily high political need and seek corresponding high trade barriers . We resolve this problem by determining incentive compatible trade policies, in which the home government has no incentive to overstate (or understate) the political pressure for protection.

Optimal Resource Management under Conditions of Uncertainty: The Case of an Ocean Fishery

The optimal management of a natural resource under stochastic conditions is analyzed in general terms and with specific application to the Eastern Pacific Yellowfin tuna fishery. Uncertainties about (1) the current future size of the resource, and (2) the market value of a resource and the cost of extracting it, exist due to variations in economic and environmental conditions. A Markov Decision Process model of the resource is developed to find optimal policies that maximize the discounted stream of expected social returns from resource use. In addition, the model is used to answer these questions: How do optimal programs for allocating resources in a deterministic environment compare with optimal programs under stochastic conditions? Do different attitudes toward social risk bearing, as regards variations in resource rents, have an effect on optimal decision rules? What is the effect of increased uncertainty about resource prices, extraction costs, and resource growth and depletion rates on optimal programs

Energy vs. the Environment

Optimal development programs that explicitly account for the environmental impacts of extracting and consuming energy resources are analyzed. Following Lee and Orr (1975), we allow for the possibility of storing the resource above ground once it has been extracted. When environmental disruption results from resource extraction (as in the case of strip mining) or there are environmental costs associated with resource consumption (for example, the social costs of air pollution from fuel consumption), then the socially optimal rates of resource consumption and extraction depend on the severity of the environmental impact and on the prospects of storing the resource above ground

Markets and Environmental Management with a Storable Pollutant

Lee (1977) investigates possibilities where pollutants may be stored for a period of time and later released into the environment when adverse effects are minimal. The treatment and storage of pollutants before their release into the environment is a crucial part of many abatement programs. Surprisingly, emission charges will not induce optimal abatement when storage is possible. This occurs because the firms' response to the dynamic tax is indeterminant. We suggest alternative controls, whereby rights to emit pollutants are sold competitively and demonstrate that markets provide incentives for the optimal generation-storage-emission of pollution by firms. In deriving this result an important difference between markets and taxes is revealed. With markets there is still indeterminacy at the firm level, but the aggregate response of all firms is dictated by market forces that insure pollution is reduced by some desired amount

A Note on Theoretical Issues on Resource Depletion

This note considers the optimal management of a non-renewable resource subject to depletion effects. It is demonstrated that even with depletion effects, if there are no non convexities in production it always pays to exhaust the resource, if it pays to exploit it at all