The impact of commitment on nonrenewable resources management with asymmetric information on costs
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.
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- Jean-Jacques LAFFONT & Jean TIROLE, 1990.
"Adverse Selection and Renegotiation in Procurement,"
Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
9005, Université de Lausanne, Faculté des HEC, DEEP.
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- Laffont, Jean-Jacques & Tirole, Jean., 1988. "Adverse Selection and Renegotiation in Procurement," Working Papers 665, California Institute of Technology, Division of the Humanities and Social Sciences.
- Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-49, August.
- Laffont, Jean-Jacques & Tirole, Jean, 1988.
"The Dynamics of Incentive Contracts,"
Econometric Society, vol. 56(5), pages 1153-75, September.
- Hung, Nguyen Manh & Poudou, Jean-Christophe & Thomas, Lionel, 2006. "Optimal resource extraction contract with adverse selection," Resources Policy, Elsevier, vol. 31(2), pages 78-85, June.
- Osmundsen, Petter, 1995. "Taxation of petroleum companies possessing private information," Resource and Energy Economics, Elsevier, vol. 17(4), pages 357-377, December.
- Petter Osmundsen, 1998. "Dynamic Taxation of Non-renewable Natural Resources Under Asymmetric Information About Reserves," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 933-951, November.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
- 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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