Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Resource Extraction Contracts Under Threat of Expropriation

Contents:

Author Info

  • Eduardo Engel
  • Ronald Fischer

Abstract

The government contracts with a foreign firm to extract a natural resource that requires an upfront investment and which faces price uncertainty. In states where profits are high, there is a likelihood of expropriation, which generates a social cost that increases with the expropriated value. In this environment, the planner's optimal contract avoids states with high probability of expropriation. The contract can be implemented via a competitive auction with reasonable informational requirements. The bidding variable is a cap on the present value of discounted revenues, and the firm with the lowest bid wins the contract. The basic framework is extended to incorporate government subsidies, unenforceable investment effort and political moral hazard, and the general thrust of the results described above is preserved.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w13742.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13742.

as in new window
Length:
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:nbr:nberwo:13742

Note: EEE ITI PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Devarajan, Shantayanan & Fisher, Anthony C, 1981. "Hotelling's "Economics of Exhaustible Resources": Fifty Years Later," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 19(1), pages 65-73, March.
  2. Heaps, Terry & Helliwell, John F., 1985. "The taxation of natural resources," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 8, pages 421-472 Elsevier.
  3. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(5), pages 993-1020, October.
  4. Salant, Stephen W, 1995. "The Economics of Natural Resource Extraction: A Primer for Development Economists," World Bank Research Observer, World Bank Group, World Bank Group, vol. 10(1), pages 93-111, February.
  5. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 11(1), pages 83-111, 02.
  6. Fraser, Rob & Kingwell, Ross, 1997. "Can expected tax revenue be increased by an investment-preserving switch from ad valorem royalties to a resource rent tax?," Resources Policy, Elsevier, Elsevier, vol. 23(3), pages 103-108, September.
  7. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers, Resources For the Future dp-97-20, Resources For the Future.
  8. Petter Osmundsen, 1998. "Dynamic Taxation of Non-renewable Natural Resources Under Asymmetric Information About Reserves," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(4), pages 933-951, November.
  9. Boadway, Robin & Flatters, Frank, 1993. "The taxation of natural resources : principles and policy issues," Policy Research Working Paper Series, The World Bank 1210, The World Bank.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hanna Krings, 2014. "Environmental Aspects of Resource Extraction Contracts," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201434, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Alexandre Janiak, 2008. "A large firm model of the labor market with entry, exit and search frictions," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 245, Centro de Economía Aplicada, Universidad de Chile.
  3. Luca Di Corato, 2010. "Profit Sharing under the Threat of Nationalization," Working Papers, Fondazione Eni Enrico Mattei 2010.5, Fondazione Eni Enrico Mattei.
  4. Janiak, Alexandre, 2008. "Welfare in Models of Trade with Heterogeneous Firms," IZA Discussion Papers 3803, Institute for the Study of Labor (IZA).
  5. Raddatz, Claudio, 2009. "Multilateral debt relief through the eyes of financial markets," Policy Research Working Paper Series, The World Bank 4872, The World Bank.
  6. Chris Hajzler, 2010. "Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006," Working Papers, University of Otago, Department of Economics 1011, University of Otago, Department of Economics, revised Sep 2010.
  7. Viviana Fernández & Brian M. Lucey, 2008. "Emerging Markets Variance Shocks: Local or International in Origin?," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 251, Centro de Economía Aplicada, Universidad de Chile.
  8. Hajzler, Christopher, 2014. "Resource-based FDI and expropriation in developing economies," Journal of International Economics, Elsevier, Elsevier, vol. 92(1), pages 124-146.
  9. Christensen, Jonas Gade, 2011. "Democracy and Expropriations," Working Papers in Economics, University of Bergen, Department of Economics 06/11, University of Bergen, Department of Economics.
  10. Markus Ludwig, . "The Visible Hand: National Oil Companies, Oil Supply and the Ermergence of the Hotelling Rent," Working papers, Faculty of Business and Economics - University of Basel 2012/11, Faculty of Business and Economics - University of Basel.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13742. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.