RT Journal Article
SR Electronic
T1 The Role of Royalties in Resource Extraction Contracts
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 340
OP 353
DO 10.3368/le.94.3.340
VO 94
IS 3
A1 Robert F. Conrad
A1 Bryce Hool
A1 Denis Nekipelov
YR 2018
UL http://le.uwpress.org/content/94/3/340.abstract
AB The manner in which governments charge mineral resource producers has been the subject of considerable debate. Income-based charges such as resource rent taxes have been advocated on the theory that royalties and other output-based charges create inefficiency by distorting production decisions. Using a principal-agent approach to resource contracts, separating asset ownership from asset use, we demonstrate that royalties can be efficient under conditions of certainty and also when there is uncertainty and asymmetric information. Royalties serve a key pricing purpose, signaling the marginal impact of extraction on the residual value of reserves and surrounding land or sea. (JEL H21, Q38)