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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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Denying the Temptation to GRAB

Denying the Temptation to GRAB

(p.197) 6 Denying the Temptation to GRAB
The Natural Resources Trap

Nils Wernerfelt

Richard Zeckhauser

The MIT Press

This chapter is part of the general literature on insecure property rights and their consequences for economic efficiency. The literature points out that there are other modes of expropriation or partial expropriation beyond merely taking over the firm. Sharp rises in taxation play this role, and so do regulations that say labor must be paid far above its competitive wage. In this literature, the tools of modern contract theory have opened the door for analyses of contracts that are optimal given unavoidable expropriation risk should certain conditions arise. Since one of the prime factors promoting expropriation is higher net returns to the government if the asset is in its hands, counter-threats may prevent expropriation in a number of instances. Therefore, the country whose firm has been expropriated can retaliate by blocking assets or imposing trade sanctions or other forms of international pressure.

Keywords:   insecure property rights, economic efficiency, expropriation, partial expropriation, taxation, competitive wage, expropriation risk, counter-threats, trade sanctions, international pressure

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