Date of this Version
The Review of Economics and Statistics
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.
Stroebel, J., & van Benthem, A. (2013). Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence. The Review of Economics and Statistics, 95 (5), 1622-1639. http://dx.doi.org/10.1162/REST_a_00333
Date Posted: 27 November 2017
This document has been peer reviewed.