Natural Resources and Sovereign Expropriation

Fridrik Baldursson () and Nils-Henrik von der Fehr

No 05/2015, Memorandum from Oslo University, Department of Economics

Abstract: A government wants to exploit a renewable resource, yielding a timevarying flow of rent, by leasing it at a fixed rate. Leasing contracts can be expropriated before expiration, albeit at a cost. To minimise transactions costs and avoid the ‘resource curse’ the government would prefer to enter into an infinitely long contract (i.e. sell the resource), if it could commit not to expropriate. However, with finite costs of expropriation credible commitment is impossible: the government either enters into finite contracts, expropriates with positive probability or does both. The value of the resource to the government is increasing in the cost of expropriation, but decreasing in the variability of the resource rent.

Keywords: Natural resources; sovereign expropriation; optimal contract length (search for similar items in EconPapers)
JEL-codes: D86 H13 Q02 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-02-15
New Economics Papers: this item is included in nep-cta and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Natural resources and sovereign expropriation (2018)
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