Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119549
Authors: 
Fridrik Mar Baldursson
von der Fehr, Nils-Henrik M.
Year of Publication: 
2015
Series/Report no.: 
Memorandum, Department of Economics, University of Oslo 5/2015
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.
Subjects: 
natural resources
sovereign expropriation
optimal contract length
JEL: 
H13
Q2
D86
Document Type: 
Working Paper

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