Regime change in Third World extractive industries: a critique

The dominant scholarly approach to the analysis of nationalization of foreign extractive industries in Third World countries employs game theory or bargaining models. A commonly used framework in bargaining theory is the so-called “bilateral monopoly model,” which posits the existence of two “non-colluding” parties—that is, the foreign investor and a government—each of whom has singular, noncontradictory objectives. The relationship is described in terms of a “balance of power” between the host country and the foreign investor based on the problem of joint-maximization. Each party has what the other needs to maximize their mutual benefits. The foreign investor has capital, organizational resources, expertise, international access to export markets, and marketing ability while the host government has control of natural resources such as ore and crude oil as well as the labor force, and control over taxation, the trade and foreign exchange regime, and other law and regulation.