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Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence


Arthur Van Benthem


University of Pennsylvania - Business & Public Policy Department

Johannes Stroebel


New York University (NYU)

May 1, 2010

USAEE Working Paper No. 10-042

Abstract:     
We use unique data on 2,466 oil extraction agreements in 38 countries to study 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 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.

Number of Pages in PDF File: 43

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Date posted: February 18, 2010 ; Last revised: September 7, 2011

Suggested Citation

van Benthem, Arthur and Stroebel, Johannes, Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence (May 1, 2010). USAEE Working Paper No. 10-042. Available at SSRN: http://ssrn.com/abstract=1554102 or http://dx.doi.org/10.2139/ssrn.1554102

Contact Information

Arthur Van Benthem (Contact Author)
University of Pennsylvania - Business & Public Policy Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6372
United States
215-898-3013 (Phone)
HOME PAGE: http://bepp.wharton.upenn.edu/profile/21174/

Johannes Stroebel
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
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