The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment

Fazel M. Farimani (Lead / Corresponding author), Xiaoyi Mu, Ali Taherifard

Research output: Chapter in Book/Report/Conference proceedingConference contribution


The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.
Original languageEnglish
Title of host publicationOperations Research Proceedings 2015
Subtitle of host publicationSelected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015
EditorsKarl Franz Doerner, Ivana Ljubic, Georg Pflug, Gernot Tragler
PublisherSpringer International Publishing
Number of pages6
ISBN (Electronic)9783319429021
ISBN (Print)9783319429014
Publication statusPublished - 2017
EventInternational Conference on Operations Research: Optimal Decisions and Big Data - University of Vienna, Vienna, Austria
Duration: 1 Sep 20154 Sep 2015


ConferenceInternational Conference on Operations Research
Abbreviated titleOR 2015
Internet address


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