Environmental Aspects of Resource Extraction Contracts

Hanna Krings ()
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Hanna Krings: University of Aachen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper analyzes resource partnerships and their influence on the environmental quality in a resource-rich country by introducing incomplete contracts, imperfect property rights protection, and a lack of valuation for the environment by the government in the South. Employing numerical simulations, I determine the equilibrium extraction rate, the applied extraction technology, and the environmental quality in dependence of the state of democracy in the resource-rich country. In contrast to what one might expect, under certain circumstances it can be environmentally beneficial to have incomplete contracts that induce the utilization of a suboptimal technology for resource extraction. Further, reducing the holdup problem by shifting bargaining power to the North, is only desirable if the environmental quality in- creases with a better extraction technology.

Keywords: Resource Extraction; Environment; North-South Trade (search for similar items in EconPapers)
JEL-codes: F18 Q37 Q56 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014
New Economics Papers: this item is included in nep-cmp, nep-cta, nep-ene, nep-env and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201434

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