Title: Study of optimum incentive mechanism based on principal-agent theory for petroleum licence

Authors: Xinhua Qiu; Zhen Wang

Addresses: School of Business Administration, China University of Petroleum, Beijing 102249, China ' Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China

Abstract: Government take of oil producing country can be enhanced by optimising the incentive mechanism of petroleum fiscal system. This paper establishes a principal-agent model to improve the production sharing contract (PSC), which is the most popular fiscal regime in hydrocarbon exploitation. It also conducts a numerical analysis to achieve the optimum fiscal design and applies the new model into a deep-water petroleum contract of China. The application results show that the expected income of host government increases by 18% compared with the old fiscal system.

Keywords: principal agent model; mechanism design; PSC; production sharing contracts; petroleum fiscal system; China; deep-water contracts; optimal oil production; international petroleum cooperation; incentives; taxation innovation; petroleum licences.

DOI: 10.1504/IJRM.2015.073821

International Journal of Revenue Management, 2015 Vol.8 No.3/4, pp.260 - 273

Received: 10 Feb 2015
Accepted: 19 Jul 2015

Published online: 23 Dec 2015 *

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