Asymmetric Players and Bargaining for Profit Shares in Natural Resource Development

Abstract

In this paper we study how natural resource development contracts depend on the level of bargaining power of Trans National Corporations (Agents) and host country governments (Principal). We concentrate on share contracts where a portion of the net firm income from resource development is transferred to the government, and show that (i) as the number of agents increase, the principal receives a greater share; (ii) if either player is able to threaten the other, the threatening player receives a greater share; and (iii) if the principal shares in production costs, he obtains a greater share. These results would generally be invariant if the principal was less risk averse than the agent.

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