A THEORY OF BARGAINING BETWEEN MULTINATIONAL CORPORATIONS AND DEVELOPING COUNTRIES OVER MINERAL AND PETROLEUM EXTRACTION CONTRACTS (JAMAICA; INDONESIA; CHILE)

The history of negotiations between multinational corporations and less developed countries involved in mineral and petroleum extraction has been widely examined. Virtually all case studies of the history of negotiations over these contracts demonstrate that, over time, the contracts tend to be renegotiated on terms more favorable to the developing country.;Another aspect of mineral and petroleum extraction is that investment tends to be "lumpy." Typically, mineral and petroleum extraction involves an enormous initial investment withing the sovereign territory of the LDC, generally financed by the MNC. Once this investment has been sunk, the LDC may threaten to appropriate the quasi-rent associated with the sunk investment. Since outside institutions such as the World Court, the World Bank, or the MNC's home country (usually the United States) have generally been unwilling or unable to enforce any breach of these contracts, the contracts must be at least partly self-enforcing.;In the final chapters of the thesis we develop a simple game-theoretic model. We assume that: (1) LDC regimes wish to maximize their time in power and (2) the likelihood of remaining in power depends (in part) upon the growth rate of income pre capita. Given these assumptions, we demonstrate that the MNC and the LDC may enter into an implicit, self-enforcing, agreement in which the LDC "renegotiates" the contract such that its profit-share gradually increases over time, while still yielding a sufficient profit to induce investment by the MNC.;This thesis begins by examining three case studies of negotiations between third world countries and mineral or petroleum extracting multinational corporations: bauxite in Jamaica, petroleum in Indonesia, and copper in Chile. We present evidence to demonstrate that the history of negotiations in Jamaica and Indonesia is inconsistent with the often cited theory (Moran (1975)) that the LDC's increase in profit-share stems from the country's development of "negotiating, superivsory, and operating skills." However, in all of these case studies, renegotiations often took place when the country was experiencing an economic or political crisis. The contract renegotiations appear to be an (often successful) attempt by the ruling regime to maintain power.