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 that delegates the production of a nonrenewable resource to a firm which has private information on costs (constant efficiency parameter). We assume the regulator is unable to commit and show that the standard contract that only distorts the inefficient firm’s production and leaves the efficient one with an informational rent is not always incentive compatible. When the discount factor and the second period price are high, some amount of pooling is needed and can be optimal. Furthermore the productive distortion is lower than under full commitment, and the size of the distortion highly depends on which exhaustibility constraints bind. We also study the impact of the discount factor on the extraction path: on the one hand, it induces a less intensive extraction (nonrenewable effect) and on the other hand, as it increases the cost of the informational rent associated with the second period, it induces a more intensive extraction when the stock is depleted.