Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence

Johannes Stroebel and Arthur van Benthem
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Arthur van Benthem: University of Pennsylvania

The Review of Economics and Statistics, 2013, vol. 95, issue 5, 1622-1639

Abstract: 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 oil price of real-world hydrocarbon contracts also helps to explain expropriations. We show theoretically and verify empirically that oil price insurance provided by tax contracts is increasing in a country's cost of expropriation and decreasing in its production expertise. The timing of actual expropriations is consistent with our model. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: oil extraction; tax contracts; oil price exposure (search for similar items in EconPapers)
JEL-codes: H21 Q34 Q38 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (45)

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