Efficiency of Trade Equilibria in the World Oil Market
This paper formulates a trading game in a productive natural resource like oil. Though simple, the model developed here will highlight the role of binding long-term agreements and will show that in their absence equilibria are inefficient. Clifford and Crawford (1987) have recently emphasized this point in the context of trade in natural resources. A related issue to which I draw attention here is that of the dynamic inconsistency
or “subgame imperfection” of precommitment equilibria.