On capturing foreign oil rents

Abstract

A common assumption in the literature on tariff and exhaustible resources is that no stocks of the resource are available within the importing country's borders and therefore the importing country is not itself a producer. Reality is in fact quite different: there are many instances of countries that are simultaneously importers and producers of an exhaustible energy resource. This paper makes use of a spatial trade model that departs from this restriction and examines the rent-extracting tariff in a more general framework where the importing country is allowed to have access to a stock of the resource of its own and to determine simultaneously the optimal tariff and the rate of depletion of its own stock. Allowing the importing country to hold some resource deposits reduces the available rent to foreign producers and, in essence, reinforces the ability of the importer to capture the foreign rent. In effect, the optimal tariff is shown to be a decreasing function of the initial resource stock in the importing country. Interestingly, the paper identifies the spatial distribution of consumers as the primary reason of time-inconsistency.