International Trade and Each Management of Shared Renewable Resources

Abstract

Using differential games, this paper analyzes output controls of internationally shared renewable resources such as transboundary natural forests. A two-country, two-good (that is, shared-resource and nonresource based goods) general equilibrium trading model is employed for this purpose. Each country non-cooperatively decides its extent of utilization of shared natural forests via welfare maximization of the country considering the other country’s utilization and the shared stock of natural forests. In this context, economists may have hitherto posited that both countries will choose incomplete specialization; that is, both countries not only use shared natural forests but also manufacture nonresource based goods. However, this paper shows that it cannot occur that both countries choose incomplete specialization along the transition process. This means that at least one country chooses complete specialization. If an incomplete specialization equilibrium occurs in both country contexts, at least one country does not follow non-cooperative welfare maximization. The key conditions are that the shared resource good’s price and market is common, that each country focuses on price, and that each good cannot be retained. Therefore, the results apply in the context of another shared resource good, that is, shared fisheries, for instance, tuna or eel.