Premium
Lease allocation systems, risk aversion and the resource rent tax[Note 1. This research has been partially funded by a Hallsworth ...]
Author(s) -
Fraser Rob
Publication year - 1998
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.00040
Subject(s) - lease , tax rate , microeconomics , economics , order (exchange) , investment (military) , rate of return , risk aversion (psychology) , resource allocation , government (linguistics) , finance , business , public economics , monetary economics , financial economics , expected utility hypothesis , market economy , politics , political science , law , linguistics , philosophy
This article examines the case of a risk‐averse mining firm facing a resource rent tax in order both to incorporate the role of the risk‐sharing quality of such a tax and to assess its implications given a government’s lease allocation system. The model develops the conditions required for an investment‐neutral RRT characterised by a threshold rate of return (r) and a rate of tax (t) and suggests that for an auction system of lease allocation, government revenue could be maximised by setting the tax rate below 100 per cent, but that for a discretionary system, it is in the government’s interest to introduce an RRT which is effectively rate‐of‐return regulation.