Unlocking Natural Wealth: Exploring Auction Theory in Alleviating the Resource Curse in Developing Countries

Abstract

This thesis addresses the persistent challenge of the "resource curse", which continues to hinder economic progress in resource-rich developing countries. Central to this dilemma is the pervasive issue of corruption, which frequently prevents these countries from leveraging their natural wealth for economic growth.

To address this critical issue, this thesis proposes public procurement reform to mitigate corruption in resource management. With a specific emphasis on resource extraction rights allocation, this approach aims to minimize the effect of corruption at the root of the natural resource curse. The goal is to avoid developing countries being bound by disadvantageous contracts for resource extraction.

By applying principles of auction theory, the proposed approach seeks to introduce transparency and competitiveness to the allocation process, thus reducing the potential for corrupt practices that exacerbate the resource curse. This thesis analyses auction theory, pinpointing typical pitfalls to be expected when integrating auction-based methods in developing countries. It aims to assess and address the challenges associated with bidder entry, refining the implementation of auctions to enhance resource allocation efficiency.