OPTIMAL CONTRACTS FOR EXPLORATION WITH COST RECOVERY OF AN EXHAUSTIBLE NATURAL RESOURCE UNDER ASYMMETRIC INFORMATION
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Exploration of an exhaustible resource with cost recovery under asymmetric information about cost is modeled and analyzed employing Principal-Agent theory. Allocation of lower than full information level of effort for the high-cost firms is found socially optimal. However, distortion is less in a two-stage process of exploration and extraction.