Changes in Institutional Design, Expropriation Risk and Extraction Path

Mohammad Kemal () and Ian Lange
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Mohammad Kemal: SKKMIGAS

No 2016-06, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: The impact of expropriation risk on the extraction path of non-renewable resources has been shown as theoretically ambiguous. It depends on capital intensity of the extraction process and the size of resource stocks. By employing producing field-level data in the South East Asia region, we observe the impact of a change in institutional design of oil governance in Indonesia on expropriation risk and extraction path. From the empirical results, we make an inference that a change in oil governance reduces expropriation risk, and the impact of the reduction on the extraction path is different for different sizes of resource stock. The results confirm the theory that for small resource stocks, reduction in expropriation risk leads to a slower extraction path. This reiterates the importance of strengthening ownership rights such that expropriation risk can be reduced, over-extraction can be avoided and more sustainable economic welfare can be achieved.

Keywords: oil governance; expropriation risk; extraction path (search for similar items in EconPapers)
JEL-codes: Q32 Q35 Q48 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2016-08
New Economics Papers: this item is included in nep-ene, nep-env and nep-sea
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http://econbus-papers.mines.edu/working-papers/wp201606.pdf First version, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mns:wpaper:wp201606

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