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Paradoxical Behavior of Production Sharing Participant

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  • Pyotr Vilensky

    (Interinvestproekt, Moscow, Russia)

  • Sergey Smolyak

    (Central Economics and Mathematics Institute, RAS, Moscow, Russia)

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    Abstract

    We 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 Info

    Article provided by New Economic Association in its journal Journal of the New Economic Association.

    Volume (Year): (2009)
    Issue (Month): 1-2 ()
    Pages: 150-159

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    Handle: RePEc:nea:journl:y:2009:i:1-2:p:150-159

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    Related research

    Keywords: Production sharing; agreements; mechanisms; efficiency; investor's behavior; paradoxes;

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