Coordination of OECD oil import policies: A gaming approach

In this paper, we assume that the world oil price is an increasing function of the level of world oil demand and that OECD nations adopt tariffs to reduce their oil imports. We present a simple model to investigate issues related to the coordination of tariff policies between two regions: US and other OECD nations. We compare the optimal tariff of each region for three cases: 1.(a) unilateral case,2.(b) noncooperative case,3.(c) cooperative case. Under the local linearity assumption, it is found that, for each region, the cooperative optimal tariff is greater than the noncooperative equilibrium tariff, which is, in turn, greater than the unilateral optimal tariff. Both the cooperative and the noncooperative optimal tariffs lead to greater net outputs for these two regions. In order to implement the cooperative optimal tariff, however, an agreement on a uniform tariff and on side payments may be needed. We conclude by discussing a numerical example.