Paradoxical Behavior of Production Sharing Participant

Pyotr Vilensky and Sergey Smolyak
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Pyotr Vilensky: Interinvestproekt, Moscow, Russia
Sergey Smolyak: Central Economics and Mathematics Institute, RAS, Moscow, Russia

Journal of the New Economic Association, 2009, issue 1-2, 150-159

Abstract: We consider a mining or other extractive project, which is fulfilled on the basis of a production-sharing agreement. These agreements provide for production sharing on the basis of current IRR or current R-factor. The implications of using such production sharing mechanisms are studied with the help of simple economic-mathematical models. It appears that in some cases these mechanisms stimulate paradoxical behavior of the investor. For example, those variants of a project which require higher investments but return same yields happen to be more advantageous to the investor; and similar are those variants which provide smaller yields with the same investments.

Keywords: Production sharing; agreements; mechanisms; efficiency; investor's behavior; paradoxes (search for similar items in EconPapers)
JEL-codes: H25 H32 L71 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2009:i:1-2:p:150-159

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