Adverse selection, commitment and exhaustible resource taxation

Julie Ing ()
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Julie Ing: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper studies the contractual relationship between a government and a firm in charge of the extraction of an exhaustible resource. Governments design taxation scheme to capture resource rent and they usually propose contracts with limited duration and possess less information on resources than the extractive firms do. This article investigates how information asymmetry on costs and an inability to commit to long-term contracts affect tax revenue and the extraction path. This study gives several unconventional results. First, when information asymmetry exists, the inability to commit does not necessarily lower tax revenues. Second, under asymmetric information without commitment, an efficient firm may produce during the first period more or less than under symmetric information. Hence, the inability to commit has an ambiguous effect on the exhaustion date. Third, the modified Hotelling's rule is such that an increase in the discount factor does not necessarily reduce the first-period extraction.

Keywords: resource taxation; asymmetric information; commitment (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cta and nep-env
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02885885
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Published in Resource and Energy Economics, 2020, 61, pp.101161. ⟨10.1016/j.reseneeco.2020.101161⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02885885

DOI: 10.1016/j.reseneeco.2020.101161

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