Abstract
This paper investigates the optimal quota/tariff polices for China and India, two of the biggest developing countries who are facing the threat of possible oil supply disruptions, with taking into their possible interactions in the common world oil market. Our results indicate that the smaller (oil-importing) country may have higher incentive to free ride on the quota/tariff policy of the larger country. Besides, the optimal tariffs for the two countries would be larger in the cooperative case than those in the non-cooperative case. Moreover, the benefits of cooperation would be larger with a ‘disrupted’ market state than that with a ‘normal’ market state, which is reflective of the fact that it is more necessary and important to cooperate when the market state is worse.
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