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The Role of Royalties in Resource Extraction Contracts

Author

Listed:
  • Robert F. Conrad
  • Bryce Hool
  • Denis Nekipelov

Abstract

The manner in which governments charge mineral resource producers has been the subject of considerable debate. Income-based charges such as resource rent taxes have been advocated on the theory that royalties and other output-based charges create inefficiency by distorting production decisions. Using a principal-agent approach to resource contracts, separating asset ownership from asset use, we demonstrate that royalties can be efficient under conditions of certainty and also when there is uncertainty and asymmetric information. Royalties serve a key pricing purpose, signaling the marginal impact of extraction on the residual value of reserves and surrounding land or sea.

Suggested Citation

  • Robert F. Conrad & Bryce Hool & Denis Nekipelov, 2018. "The Role of Royalties in Resource Extraction Contracts," Land Economics, University of Wisconsin Press, vol. 94(3), pages 340-353.
    • Handle: RePEc:uwp:landec:v:94:y:2018:i:3:p:340-353
    Note: DOI: 10.3368/le.94.3.340
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    Citations

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    Cited by:

    1. Bertrand Laporte & Celine de Quatrebarbes & Yannick Bouterige, 2022. "Tax design and rent sharing in mining sector: Evidence from African gold‐producing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(6), pages 1176-1196, August.
    2. Prest, Brian C. & Stock, James H., 2023. "Climate royalty surcharges," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    3. Bertinelli, Luisito & Bourgain, Arnaud & Zanaj, Skerdilajda, 2022. "Taxes and declared profits: Evidence from gold mines in Africa," Resources Policy, Elsevier, vol. 78(C).

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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