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Changes in Institutional Design, Expropriation Risk and Extraction Path

Author

Listed:
  • Mohammad Kemal

    (SKKMIGAS)

  • Ian Lange

    (Division of Economics and Business, Colorado School of Mines)

Abstract

The impact of expropriation risk on the extraction path of non-renewable resources has been shown as theoretically ambiguous. It depends on capital intensity of the extraction process and the size of resource stocks. By employing producing field-level data in the South East Asia region, we observe the impact of a change in institutional design of oil governance in Indonesia on expropriation risk and extraction path. From the empirical results, we make an inference that a change in oil governance reduces expropriation risk, and the impact of the reduction on the extraction path is different for different sizes of resource stock. The results confirm the theory that for small resource stocks, reduction in expropriation risk leads to a slower extraction path. This reiterates the importance of strengthening ownership rights such that expropriation risk can be reduced, over-extraction can be avoided and more sustainable economic welfare can be achieved.

Suggested Citation

  • Mohammad Kemal & Ian Lange, 2016. "Changes in Institutional Design, Expropriation Risk and Extraction Path," Working Papers 2016-06, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201606
    as

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    File URL: http://econbus-papers.mines.edu/working-papers/wp201606.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    oil governance; expropriation risk; extraction path;
    All these keywords.

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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