Abstract
Government take of oil producing country can be enhanced by optimising the incentive mechanism of petroleum fiscal system. This paper establishes a principal-agent model to improve the production sharing contract (PSC), which is the most popular fiscal regime in hydrocarbon exploitation. It also conducts a numerical analysis to achieve the optimum fiscal design and applies the new model into a deep-water petroleum contract of China. The application results show that the expected income of host government increases by 18% compared with the old fiscal system.
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