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Division of Nonrenewable Resource Rents: A Model of Asymmetric Nash Competition with State Control of Heterogeneous Resources

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  • Pete Maniloff

    () (Division of Economics and Business, Colorado School of Mines)

  • Dale T. Manning

    () (Department of Agricultural and Resource Economics, Colorado State University)

Abstract

This paper presents a model of nonrenewable resource extraction across multiple states which engage in strategic tax competition. The model incorporates rents due to both resource scarcity and capital scarcity as well as intra-state Ricardian rents. States set taxes on nonrenewable resource production strategically to balance tax revenues and local benefits from investment conditional on other states' tax rates. A representative firm then allocates production capital across states and time to maximize profits. Generally, we find that Nash equilibrium state severance tax rates are dependent on state oil reserves, industry production capital, and costs of investment. We use a parameterized example and find that Nash equilibrium tax rates are substantially higher than observed rates. States have an incentive to unilaterally increase their own tax rates even when industry capital can relocate. Both findings hold unless policymakers place a value on domestic economic activity of more than $500,000 per oil sector job per year.

Suggested Citation

  • Pete Maniloff & Dale T. Manning, 2015. "Division of Nonrenewable Resource Rents: A Model of Asymmetric Nash Competition with State Control of Heterogeneous Resources," Working Papers 2015-08, Colorado School of Mines, Division of Economics and Business.
  • Handle: RePEc:mns:wpaper:wp201508
    as

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    File URL: http://econbus-papers.mines.edu/working-papers/wp201508.pdf
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    References listed on IDEAS

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    Cited by:

    1. Lange, Ian & Redlinger, Michael, 2019. "Effects of stricter environmental regulations on resource development," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 60-87.

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