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Solving the principal - agent problem in Iraq: economic incentives create a new model for security

By Verlan R. Cole, L. Scott Hollingsworth and Jayson L. Cramer


MBA Professional ReportApproved for public release; distribution is unlimitedThis paper offers a path for Iraqis to provide for their own security by ensuring each Iraqi citizen has a stake in Iraq's oil wealth. The hypothesis is that private, individual oil ownership provides dual incentives. First, each Iraqi citizen would have an interest in contributing to the security of Iraq's oil infrastructure and in monitoring the quality of investments, since they and their family would directly benefit. Second, if each Iraqi had the ability to convert some of their stake in Iraq's nonrenewable oil resources into renewable financial capital, then they would make entrepreneurial investments that could help diversify Iraq's economy and contribute to economic development. This report evaluates several alternatives that might be offered for consideration by Iraqi policy makers to distribute Iraq's oil wealth directly to the Iraqi people. The Alaska Permanent Fund dividend offers one potential model for Iraq. Other models explored in this study include the experience of Chad and various privatizations that took place in Eastern Europe. The advantages and disadvantages of alternative oil distribution schemes are explored in an effort to offer new insights and opportunities to policy makers. Several criteria were developed to evaluate the proposed alternatives. These criteria were an outgrowth of three main questions asked of each alternative: First, how efficiently would the model distribute oil ownership to the Iraqi people? Second, how effective is it likely to be in encouraging individuals to support increased security and stability? And finally, how effective is it likely to be in contributing to future economic development?Outstanding Thesi

Topics: Oil fields., Oil revenue distribution, Iraq stabilization and reconstruction, Alaska Permanent Fund Dividend, privatization
Publisher: Monterey, California. Naval Postgraduate School
Year: 2007
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