Optimal Resource Extraction Contracts under Threat of Expropriation

OPTIMAL RESOURCE EXTRACTION CONTRACTS UNDER THREAT OF EXPROPRIATION BY EDUARDO ENGEL and RONALD FISCHER COWLES FOUNDATION PAPER NO. 1317 COWLES FOUNDATION FOR RESEARCH IN ECONOMICS

Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence

We use fiscal data on 2,468 oil extraction agreements in 38 countries to study tax contracts between resource-rich countries and independent oil companies. We analyze why expropriations occur and what determines the degree of oil price exposure of host countries. With asymmetric information about a country’s expropriation cost even optimal contracts feature expropriations. Near-linearity in the...

Pricing expropriation risk in natural resource contracts – A real options approach

We develop a model for pricing expropriation risk in natural resource projects, in particular an oil field. The government is viewed as holding an American-style option to expropriate the oil field, but facing the following three possible expropriation costs: A state-run company may produce oil less cost-efficiently than a private firm, the government may have to pay a compensation to the firm,...

Negotiation and Renegotiation of Optimal Financial Contracts Under the Threat of Predation

Conflict and Mobility: Resource Sharing Among Groups

We study a political competition between two groups, where the winner has the decision rights to allocate resources, like political parties deciding on sharing of patronage goods. What factors determine how resources are shared? We highlight an important force that affects distribution of resources, namely the ability to move between groups. In many contexts, group sizes are determined endogeno...