Mining and Incentive Concession Contracts

Abstract

This paper studies the design of a mining concession contract as a multi-period autoselection problem where production is the depletion of a non renewable resource. As compared to symmetric information, we show that overproduction (resp. underproduction) is optimal in the initial phase (resp. terminal phase ) of the resource extraction program. Also, asymmetric information lengthens the contract duration but reduces the scarcity rent. Finally, when there are several agents competing for contract bid, we show that optimal auctioning could be used to award the concession, assigning the lowest cost agent to carry out the extraction.ADVERSE SELECTION; EXHAUSTIBILITY; OVERPRODUCTION