A Dynamic Bertrand Game Model of Trade, Threats, and Export Certification in Alien Species Management

We analyze a dynamic Bertrand game model of trade between Foreign and Home in which the Foreign firm's export good is shipped to Home in containers carried by ships. This shipment to Home may also result in the unwitting introduction of alien species from Foreign into Home. By undertaking prophylactic measures in Foreign, the Foreign firm can certify that the container cargo it is sending to Home contains no alien species. However, because certification is costly, ceteris paribus, the Foreign firm has little or no incentive to certify its exports. Therefore, we investigate whether it is possible for a regulatory authority in Home to threaten to levy a duty on the Foreign firm's exports and thereby get this firm to certify its exports. Our analysis shows that when the elasticities of import and domestic demand and the profit function of the Foreign firm satisfy certain restrictions, it is indeed possible for the Home regulatory authority to obtain export certification with the threat of a duty on the Foreign firm's exports