The Time-Consistent Optimal Export Policy, Market Structure, and Time-Non-Separable Preferences

Abstract

The interplay of time-non-separable (TNS) utility and non-competitive market structure gives rise to a time-consistency issue that changes the optimal export policy prescription vis-à-vis what would obtain in either a time-separable utility setting or in a TNS setting in which firms could credibly commit to a path of output. In particular, in the time-consistent equilibrium both the traditional terms-of-trade exploitation motive for an export tax and the profit-shifting strategic-trade analysis motive for an export subsidy coexist, and the optimal policy prescription depends critically on demand and cost parameters.