Alaska’s Corporate Social Responsibility: The Economics of the Corruption Case of VECO

Douglas B. Reynolds ()
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Douglas B. Reynolds: University of Alaska Fairbanks

A chapter in Sovereign Wealth Funds, Local Content Policies and CSR, 2021, pp 567-578 from Springer

Abstract: Abstract During the early 2000s, Alaska tried to develop its natural gas industry just as natural gas prices in the US market were high, highlighting an interesting case of Corporate Social Responsibility (CSR). In order to develop an Alaskan natural gas industry, then, a two thousand mile, multi-billion dollar pipeline would be needed, and such a pipeline would require a tax contract between the state of Alaska and the Alaskan North Slope oil producers, which would create tough negotiations and a strenuous relationship between Alaska and the international oil companies (IOCs). Usually, governments choose petroleum taxes, regulations, and government support within the petroleum industry based on maximizing social welfare, but not based on maximizing corporate profits. The corporations though needed a certain level of profits in order to be able to invest in a new petroleum development. Therefore, there is a natural incentive for corporations to try to change government policy in order to reduce their risk and assure profitability. However, there is one other factor to consider when trying to get such a gigantic pipeline built and a new natural gas industry started, which are the risks involved. Since investors are taking huge risks to build natural gas infrastructure, then they need favorable taxes to get the job done or they cannot make the investment pay off, and sometimes, they use corrupt means to get a good deal, in which case their Corporate Social Responsibility can be lost. Still, it is not always possible to know the absolute best tax rates or the perfect government terms and conditions that will maximize social value. Therefore, if social welfare includes not just the best terms possible of a tax contract but also whether a project is completed or not, then even if taxes are low, the state could still receive jobs and maximize social welfare compared to not having a new industry at all. Thus, the Alaska VECO corruption case analysis also shows an intricate economic calculation of the expected costs and benefits of the project, after the fact, of how things could have turned out.

Keywords: Resource development; Corruption; Negotiating terms (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/978-3-030-56092-8_32

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