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Do Royalties: “have a disincentive effect on production"?

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  • Fraser, Rob W.
  • Rygnestad, Hild

Abstract

This paper analyses the impact of royalties in the context of a bilateral monopoly bargaining process. It is shown that the bilateral monopoly model is characterised by two distinct forms which are distinguished by the shape of the seller’s marginal cost function, and that the view that royalties have a disincentive effect on production is unfounded for one of these forms. It is argued that the forms of bilateral monopoly can be differentiated by identifying the direction of the observed correlation between movements in traded prices and quantities. This proposal is investigated in the context of the Australian iron ore and coal industries, and it is suggested that, in the case of iron ore, royalties do not have a disincentive effect on production.

Suggested Citation

  • Fraser, Rob W. & Rygnestad, Hild, 1999. "Do Royalties: “have a disincentive effect on production"?," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 123804, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare99:123804
    DOI: 10.22004/ag.econ.123804
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    References listed on IDEAS

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    1. Smith, Ben, 1977. "Bilateral Monopoly and Export Price Bargaining in the Resource Goods Trade," The Economic Record, The Economic Society of Australia, vol. 53(141), pages 30-50, March.
    2. Ben Smith, 1977. "Bilateral Monopoly and Export Price Bargaining in the Resource Goods Trade," The Economic Record, The Economic Society of Australia, vol. 53(1), pages 30-50, March.
    3. Emerson, Craig & Lloyd, P J, 1983. "Improving Mineral Taxation Policy in Australia," The Economic Record, The Economic Society of Australia, vol. 59(166), pages 232-244, September.
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