Extracting Information or Resource? The Hotelling Rule Revisited under Asymmetric Information.

Summary We characterize the optimal extraction path when a concessionaire has private information on the initial stock of resource. Under asymmetric information, a `virtual Hotelling rule' describes how the resource price evolves over time and how extraction costs are compounded with information costs along an optimal extraction path. In sharp contrast with the case of complete information, elds which are heterogeneous in terms of their initial stocks follow dierent extraction paths. Some resource might be left unexploited in the long-run as a way to foster incentives. The optimal contract may sometimes be implemented through royalties and license fees. With a market of concessionaires, asymmetric information leads to a `virtual Herndahl principle' and to a new form of heterogeneity across active concessionaires. Under asymmetric information, the market price converges faster to its long-run limit, exhibiting more stability.