The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment

Fazel M. Farimani (), Xiaoyi Mu and Ali Taherifard ()
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Fazel M. Farimani: Center for Energy, Petroleum and Mineral Law and Policy, University of Dundee
Ali Taherifard: Imam Sadiq University

A chapter in Operations Research Proceedings 2015, 2017, pp 555-561 from Springer

Abstract: Abstract The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.

Keywords: Interest Rate; Shadow Price; Depletion Rate; Neutral Case; Host Government (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-319-42902-1_75

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DOI: 10.1007/978-3-319-42902-1_75

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