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The Natural Resources TrapPrivate Investment without Public Commitment$
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William Hogan and Federico Sturzenegger

Print publication date: 2010

Print ISBN-13: 9780262013796

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262013796.001.0001

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Dealing with Expropriations: General Guidelines for Oil Production Contracts

Dealing with Expropriations: General Guidelines for Oil Production Contracts

(p.227) 7 Dealing with Expropriations: General Guidelines for Oil Production Contracts
The Natural Resources Trap

Roberto Rigobon

The MIT Press

The aim of this chapter is to understand the motives behind the contracting problem faced by the government, in the process attempting to rationalize the choices of instruments that are used in practice and finding areas of improvement in the “typical” contract. The objective is to indicate how some elements of the contract can be introduced in the discussion in order to reduce the incentives to renegotiate, and to reduce their disruptions. The chapter also examines the merits of two methods of tax remittance common to resource extraction contracts: income taxes and revenue-proportional royalty payments. In particular, the chapter investigates the incentives created by these two methods of tax remittance, emphasizing the trade-off between efficient incentives and the risk of expropriation.

Keywords:   contracting problem, incentives to renegotiate, tax remittance, resource extraction contracts, income taxes, revenue-proportional royalty payments, efficient incentives, risk of expropriation

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