Incentive Compatible Extraction of Natural Resource Rent

Cornelia Luchsinger () and Adrian Muller ()
Additional contact information
Cornelia Luchsinger: Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland

No 03-21, CEPE Working paper series from CEPE Center for Energy Policy and Economics, ETH Zurich

Abstract: The exploitation of natural resources often generates considerable economic rent. Since such so-called resource rents accrue due to innate characteristics of the resource itself thus reflecting its eco-nomic value and not due to managerial abilities of the exploiting firm, at least part of it should - as a price for the use of the resource – be collected by the owner of the resource, which is often the gov-ernment. As the owner of the resource faces a classical principal-agent problem, the incentives to exploit a resource efficiently should be taken into account when setting up a rent extraction scheme. We pre-sent a formalism that unifies different existing approaches to such schemes and address issues such as asymmetric information, risk aversion, and uncertainty. Finally, we discuss the feasibility to base a rent extraction scheme on such a formalism and point out its main problems. The most important ones are the presence of intrinsically unobservable and very uncertain values and the high complexity of the formalism. There are mainly two possibilities to deal with these problems: either to make additional as-sumptions and to set boundary conditions such as to solve the problem in a simplified setting, as much of the literature does, or to refrain from solving it, and instead use it as a general guiding principle, which helps to avoid gross errors and shows the broad direction, but leaves the concrete implementa-tion rather to a political process than to an economic analysis.

Keywords: natural resource rent; incentives; rent extraction; regulation (search for similar items in EconPapers)
JEL-codes: H21 Q00 Q40 R52 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2003-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP21.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not found UA (http://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP21.pdf [301 Moved Permanently]--> https://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP21.pdf [301 Moved Permanently]--> https://cepe.ethz.ch/publications/workingPapers/CEPE_WP21.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cee:wpcepe:03-21

Access Statistics for this paper

More papers in CEPE Working paper series from CEPE Center for Energy Policy and Economics, ETH Zurich Contact information at EDIRC.
Bibliographic data for series maintained by Carlos Ordas ().