Document Type : Research Paper

Authors

• Mohammadmahdi Askari ¹
• Hamidreza Maboudi ²

¹ Faculty of Islamic Studies and Economics, Imam Sadiq University, Tehran, Iran

² Faculty of Economics and Islamic Study, Imam Sadiq University

Abstract

This research is modeling third generation of buy back oil contracts by considering a double moral hazard and employing Cubb-Douglas production function. The result shows that buy-back oil contracts are not in the first best or second best in double moral situation. Ove to this type of contracts is a cost plus contract and the payoff of the contractor is fixed, in double moral hazard the production is affected by the level of action of both parties, for nearing to the optimum point. Hence, the contract should be the long-term and the pay off of the project should be shared between parties.

Keywords

• Buy-Back Oil Contracts
• Double Moral Hazard
• Cubb-Douglas Function