Aller au contenu principal

page search

Bibliothèque Profit Sharing under the Threat of Nationalization

Profit Sharing under the Threat of Nationalization

Profit Sharing under the Threat of Nationalization

Resource information

Date of publication
Décembre 2010
Resource Language
ISBN / Resource ID
AGRIS:US2016214620

A multinational corporation engages in foreign direct investment for the extraction of a natural resource in a developing country. The corporation bears the initial investment and earns as a return a share of the profits. The host country provides access and guarantees conditions of operation. Since the investment is totally sunk, the corporation must account in its plan not only for uncertainty in market conditions but also for the threat of nationalization. In a real options framework, where the government holds an American call option on nationalization, we show under which conditions a Nash bargaining leads to a profit distribution maximizing the joint venture surplus. We find that the threat of nationalization does not affect the investment threshold but only the Nash bargaining solution set. Finally, we show that the optimal sharing rule results from the way the two parties may differently trade of rents with option values.

Share on RLBI navigator
NO

Authors and Publishers

Author(s), editor(s), contributor(s)

Di Corato, Luca

Data Provider