Efficiency-inducing lump sum taxation in non-renewable resource industries

This paper studies the design of efficiency-inducing lump-sum taxes in common-pool non-renewable resource industries. Although fixed payments such as royalties, rents, and lease fees play a central role in real-world resource taxation, their theoretical properties remain largely unexplored. We develop a dynamic Cournot model in which firms exploit a shared exhaustible stock and pay a lump-sum tax that depends solely on the current resource level. We characterize the tax that decentralizes the social planner’s extraction path under both open-loop and closed-loop information structures. When marginal extraction costs are independent of the resource stock, the optimal tax under open-loop strategies is positive and exceeds the corresponding tax under closed-loop strategies. In contrast, when extraction costs decline with the stock, the optimal tax in both information structures may be positive or negative, with its sign determined by a threshold of industry concentration, which varies across the two settings. Closed-form solutions for linear and iso-elastic demands reveal that the optimal tax can be strictly negative (resp. positive) even in the interval of resource stocks where the laissez-faire equilibrium output is higher (resp. lower) than the social planner’s solution.