The Geoeconomics of Contract Enforcement

• Authors: Elena Paltseva, Gerhard Toews and Marta Troya-Martínez
• BSE Working Paper: 1569 | March 2026
• Keywords: institutions, political economy, dynamic incentives, oil
• JEL codes: D86, L14, O13, H20, P48

Historically, contract enforcement between multinationals and host governments relied on military power. In the late 1960s, Western Great Powers (WGP) – U.S., U.K., France – sharply reduced military interventions, increasing expropriation risk in weak-institution countries. We study the effect of this unanticipated global shift using microdata from the petroleum industry. Firms headquartered in WGP responded by delaying (“backloading”) production by 2-4 years, converging to the delays already exhibited by other multinationals. Backloading resulted in annual revenue losses of one quarter billion US$ per country, largely offset by higher government rent-shares. These patterns are consistent with the formation of self-enforcing agreements.