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Expropriation Risk and Technology.

Expropriation Risk and Technology.


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About the Book

My paper characterizes a dynamic relation between a firm and an impatient government that may expropriate the firm without legal punishment. The only sanction mechanism of the firm results from its productivity advantage in managing its assets. In this environment, I derive dynamics of investment and transfers and characterize the unique stationary allocation. The loading of the contract is determined by the initial surplus division. Backloading refers to the case, where investment is increasing over time and transfers from the firm to the government are deferred until the steady state is reached. Frontloading refers to the case where the firm initially makes larger payments than in the steady state. The steady state features non-monotonic comparative statics of the government's payoff with respect to its relative production efficiency. While the reduced incentive problem associated with technological incompetence increases investment efficiency, the lower threat point limits the share of the surplus obtained by the government. Markov-type discount rate shocks of the government generate expropriation on the equilibrium path with low technology-intensive sectors at the top of the pecking order. Firms are able to mitigate the government's incentive to expropriate via non-horizontal integration. The model predictions are consistent with observed contracts between sovereign countries and foreign direct investors. Special emphasis is given to production sharing agreements, the most common contract form in the oil industry. My paper has broader implications for principal-agent models with heterogeneous discounting.


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Product Details
  • ISBN-13: 9781243470188
  • Publisher: Proquest, Umi Dissertation Publishing
  • Publisher Imprint: Proquest, Umi Dissertation Publishing
  • Height: 246 mm
  • Weight: 218 gr
  • ISBN-10: 1243470186
  • Publisher Date: 01 Sep 2011
  • Binding: Paperback
  • Spine Width: 6 mm
  • Width: 189 mm


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