Summary of the Discussion

The paper identifies six specific features of natural resource industries, namely a long-time horizon, vertical stages of production, high set-up costs, private risks, idiosyncratic investment, and social risk. It is argued that these features have implications for the institutional arrangements. These features are perhaps largely characteristic of national resource markets, but there are other features which are important in international markets. Firstly, property rights tend to be much less well defined, consider for example orbital slots for satellites. At a national level, common property problems are being sorted out, but not at the international level. In the absence of transaction costs, it is true that it does not matter a great deal who gets the original property rights. But with transaction costs it is important to have institutional arrangements which allocate the rights to those who can best use them. Secondly, exchange rate risks should be mentioned, although these of course are not specific to resource markets. Finally, political risks need to be taken into account in international markets, although it is not clear that companies take more political risks in international markets than they do in the domestic market. For example, Chevron at the moment has probably got more political power in communist governed Angola than in the U.S. — it is quite possible that property rights in Angola are less exposed to political risks.