Regular Article
Externalities, Market Power, and Resource Extraction

https://doi.org/10.1006/jeem.1999.1067Get rights and content

Abstract

This article analyzes the effect of market power in the presence of dynamic and biological externalities. When several countries harvest fish in international waters the evolution of fish population is affected by their joint action, thus generating a biological and a dynamic externality. If there is trade, the market-clearing prices depend on the harvesting and consumption in all countries. Therefore, market-clearing prices also generate an externality. We find a subgame perfect Cournot–Nash equilibrium and study the conditions under which it may be efficient. We also analyze the role of different externalities in generating inefficiency.

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We would like to thank Mike Conlin, Kevin Reffett, and the anonymous referees/editors of this journal for very useful comments and suggestions.

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