Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence
The Review of Economics and Statistics
2013
We use fiscal data on 2,468 oil extraction agreements in 38 countries to study tax contracts between resource-rich countries and independent oil companies. We analyze why expropriations occur and what determines the degree of oil price exposure of host countries. With asymmetric information about a country's expropriation cost, even optimal contracts feature expropriations. Near linearity in the oil price of real-world hydrocarbon contracts also helps to explain expropriations. We show theoretically and verify empirically that oil price insurance provided by tax contracts is increasing in a country's cost of expropriation and decreasing in its production expertise. The timing of actual expropriations is consistent with our model.
- DOI
- 10.1162/rest_a_00333
- Volume
- 95 (5)
- Pages
- 1622-1639
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref