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Paradoxical Behavior of Production Sharing Participant

Author

Listed:
  • Pyotr Vilensky

    (Interinvestproekt, Moscow, Russia)

  • Sergey Smolyak

    (Central Economics and Mathematics Institute, RAS, Moscow, Russia)

Abstract

We consider a mining or other extractive project, which is fulfilled on the basis of a production-sharing agreement. These agreements provide for production sharing on the basis of current IRR or current R-factor. The implications of using such production sharing mechanisms are studied with the help of simple economic-mathematical models. It appears that in some cases these mechanisms stimulate paradoxical behavior of the investor. For example, those variants of a project which require higher investments but return same yields happen to be more advantageous to the investor; and similar are those variants which provide smaller yields with the same investments.

Suggested Citation

  • Pyotr Vilensky & Sergey Smolyak, 2009. "Paradoxical Behavior of Production Sharing Participant," Journal of the New Economic Association, New Economic Association, issue 1-2, pages 150-159.
    • Handle: RePEc:nea:journl:y:2009:i:1-2:p:150-159
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    More about this item

    Keywords

    Production sharing; agreements; mechanisms; efficiency; investor's behavior; paradoxes;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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