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 Sept 20154 Sept 2015


    ConferenceInternational Conference on Operations Research
    Abbreviated titleOR 2015
    Internet address


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