Dokument

Summary:
This paper analyzes resource partnerships and their in uence on the environmental quality in a resource-rich country by introducing incomplete contracts, imperfect property rights protection, and a lack of valuation for the environment by the government in the South. Em- ploying numerical simulations, I determine the equilibrium extraction rate, the applied extraction technology, and the environmental quality in dependence of the state of democracy in the resource-rich country. In contrast to what one might expect, under certain circumstances it can be environmentally bene�cial to have incomplete contracts that induce the utilization of a suboptimal technology for resource extrac- tion. Further, reducing the holdup problem by shifting bargaining power to the North, is only desirable if the environmental quality in- creases with a better extraction technology.

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