Natural resources and sovereign expropriation

Fridrik Baldursson () and Nils-Henrik von der Fehr

Journal of Environmental Economics and Management, 2018, vol. 92, issue C, 580-607

Abstract: A government wants to exploit a renewable resource, yielding a time-varying flow of rent, by leasing it. Leasing contracts can be expropriated before expiration, albeit at a cost. To minimise transactions costs and avoid the ‘resource trap’ the government would prefer to enter into an infinitely long contract (i.e. sell the resource), if it could commit not to expropriate. However, with finite costs of expropriation credible commitment is impossible: the government either enters into finite contracts, expropriates with positive probability or does both. The value of the resource to the government is increasing in the cost of expropriation, but decreasing in the variability of the resource rent.

Keywords: Sovereign expropriation; Optimal contract length; Natural resources (search for similar items in EconPapers)
JEL-codes: D86 H13 Q2 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Natural Resources and Sovereign Expropriation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:92:y:2018:i:c:p:580-607

DOI: 10.1016/j.jeem.2017.08.004

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