The Geoeconomics of Contract Enforcement: Coercion or Backloading

Talk by Elena Paltseva (Stockholm Institute of Transition Economics) as part of the Research Seminar Series of the IOS Economics Department.

Historically, international contract enforcement relied on military power. In the late 1960s, Western powers reduced military interventions, increasing expropriation risk in developing countries. Using oil industry data, we show this geopolitical shift led to a 3–4 year delay in production and taxation— known as “backloading”—resulting in average annual revenue losses of $1 billion per country. However, for tax revenues this loss was offset by increase in government rent-share. These patterns align with the emergence of self-enforcing agreements under limited formal enforcement. Supporting this interpretation, we show that U.S. military redeployments to the Gulf in the 1980s reduced both backloading and government rent-shares.