Paradoxical Behavior of Production Sharing Participant
AbstractWe consider a mining or other extractive project, which is fulfilled on the basis of a production-sharing agreement. These agreements provide for production sharing on the basis of current IRR or current R-factor. The implications of using such production sharing mechanisms are studied with the help of simple economic-mathematical models. It appears that in some cases these mechanisms stimulate paradoxical behavior of the investor. For example, those variants of a project which require higher investments but return same yields happen to be more advantageous to the investor; and similar are those variants which provide smaller yields with the same investments.
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Bibliographic InfoArticle provided by New Economic Association in its journal Journal of the New Economic Association.
Volume (Year): (2009)
Issue (Month): 1-2 ()
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Production sharing; agreements; mechanisms; efficiency; investor's behavior; paradoxes;
Find related papers by JEL classification:
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
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