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The impact of commitment on nonrenewable resources management with asymmetric information on costs

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  • Julie Ing

    (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)

Abstract

We study the optimal contracts (payment and extraction path) implemented by a regulator unable to commit to long term contracts that delegates the extraction of a nonrenewable resource to a firm. The regulator wishes to maximize the tax revenue and does not know the firm’s efficiency which is private information. As the regulator is unable to commit, the ratchet effect appears. We show that the contracts implemented depend on which types of firms exhaust the stock. If both types exhaust the stock, the contracts are fully separating and similar to those implemented under full commitment. The efficient firm produces the first best and gets an informational rent whereas the inefficient one produces lower quantity. If the stock is not exhausted, the contracts are semi separating and the inefficient firm produces higher quantity than under full commitment and the tax revenue is lower. However, those contracts may not be incentive compatible if the discount factor and the second period price are high and thus the regulator may be forced to implement a pooling contract.

Suggested Citation

  • Julie Ing, 2012. "The impact of commitment on nonrenewable resources management with asymmetric information on costs," Working Papers 1205, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:1205
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    References listed on IDEAS

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    1. Georges Dionne & Claude Fluet, 2000. "original papers : Full pooling in multi-period contracting with adverse selection and noncommitment," Review of Economic Design, Springer;Society for Economic Design, vol. 5(1), pages 1-21.
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    More about this item

    Keywords

    Nonrenewable resources; commitment; asymmetric information;
    All these keywords.

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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