Share Ownership Distribution, Non-renewable Resources Extraction Rate and Pollution Intensity

Abstract

There is increasing concern for scarcity of natural resources and deterioration of the environment due to economic activity. Although theoretically the Hotelling rule not only provides an optimal extraction for the resource owner's profit maximization problem but also provides the optimal solution for society as a whole, the rule fails to fit the facts and only applies to the idealised world for which it was constructed. In particularly, when the resource firm realises it can affect its price depending on extraction, shareholders will disagree on the extraction rate. Thus, how to deal with the shareholders' interests and make decisions for resource firms is of central importance. Endogenizing firms' objectives through shareholder voting via majority rule is considered as the solution.

This thesis analyzes the behaviour of resources firms in shareholder voting equilibrium when the firms' decisions are taken through shareholder voting. Firstly, theoretical models are formulated for the extraction rate and pollution intensity of resources firms respectively. We show that the share ownership owned by the largest shareholder is an important determinant of extraction rate and pollution intensity. Moreover empirical studies using panel data are conducted to test the hypothesis. We find strong evidence supporting our theoretical implications. As for the extraction rate in resource firms, the results indicate a significant and negative relation between extraction rate and the share owned by the largest shareholder. However, a significantly positive relation is found using oil fields level data. As for the pollution emissions in firms, we find the firm where the largest shareholder holds a larger share will have lower pollution intensity.