Essays on Government Policy and the Development of Natural Resources

This study examines the effect of government policies and institutions on the development of exhaustible resources. This research is pertinent because of the relative importance of exhaustible resources (i.e., oil) in the world economy. The three chapters in this thesis explore how governments generate revenues from, and the effect these policies have on, the development and exploitation of exhaustible resources. This dissertation adds to our understanding of the relationship between government policy and the investment and extraction decisions regarding exhaustible resources, as it examines policies which have garnered very little attention previously. Specifically, I examine: (1) strategic interaction in lease auctions; (2) optimal resource tax policy; and (3) provincial government expropriation threats.;Chapter 3 studies optimal taxation of an exhaustible resource when producers have private cost information. In order to generate maximal tax revenues, governments wish to induce truthful revelation of cost-type by firms, which requires type-specific taxation. When both up-front payments and production taxes vary with deposit quality, there are multiple solutions to the optimal tax problem. This helps to explain the variety of tax systems observed world-wide.;Chapter 4 analyses the relationship between an expropriation threat and the development of an exhaustible resource sector. Saskatchewan under the governance of the Co-operative Commonwealth Federation is used as a case study. The results indicate the perceived threat of expropriation had an effect on land values in Saskatchewan. Moreover, we can conclude Saskatchewan was considered to be a risky place to invest, relative to Alberta, during the tenure of the CCF government. The expropriation threat did not reduce investment in extraction, but did reduce willingness to pay for mineral rights relative to Saskatchewan.;Chapter 2 examines the effects of strategic interaction by firms in auctions for petroleum and natural gas leases. Firms have the option to hide private information through the use of a broker. After controlling for measures of private information, the use of a broker is associated with higher winning bids. Furthermore, the use of brokers is persistent and geographically concentrated.