Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

27

Publisher

Utah State University Department of Economics

Publication Date

2000

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

27

Abstract

In this paper we have examined optimal tariffs for non-renewable natural resources in the setting of imperfect competition. We do this because Larry Karp (1984, p. 74) states that, "If the buyer attempts to exert market power, he is constrained by the dynamic optimization behavior of the seller and does not face a standard control problem." We show that when extraction costs are a function of the remaining stock of the resource, the costate variable can be separated into a scarcity effect and a cost effect. Karp concludes that the cost effect must be left with the producer; thereby, restricting the actions of the buyer. We, however, prove that it is not necessary to pay this cost effect to the producer; hence, we conclude that the monopsonist can extract all of the rent from the seller. The optimal tariff is neither dynamically time inconsistent, nor is it "Karp's consistent tariff."

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