OPTIMAL CONTRACTS FOR EXPLORATION WITH COST RECOVERY OF AN EXHAUSTIBLE NATURAL RESOURCE UNDER ASYMMETRIC INFORMATION

Abstract

Exploration of an exhaustible resource with cost recovery under asymmetric information about cost is modeled and analyzed employing Principal-Agent theory. Allocation of lower than full information level of effort for the high-cost firms is found socially optimal. However, distortion is less in a two-stage process of exploration and extraction.Resource /Energy Economics and Policy,