Evaluation of the relationship between the government and contractors in the field of financial resources of mining projects using the Nash bargaining method

Document Type : Article

Authors

Department of Mining Engineering, Faculty of Mining Engineering, Amirkabir University of Technology, Tehran, Iran

Abstract

The complex relationship between governments and contractors in the mining industry requires intelligent management, especially in cases of financial constraints. Effective decision making by both parties is very important to achieve optimal results and maintain the economic share of the industry. Engagement and strategic management of government-contractor relationships is essential to address challenges and ensure mutually beneficial outcomes. The use of tools such as game theory and Nash bargaining provides suitable methods for conflict resolution and efficiency optimization. By understanding the dynamics of this relationship, stakeholders can work towards promoting sustainable and successful mining practices. This paper pursues two main goals: First, it aims to develop a comprehensive model of government-contractor dynamics using game theory principles. It explores strategic interactions to elucidate the underlying drivers of decision making in the mining sector. Second, it seeks to evaluate Nash bargaining as a mechanism for resolving conflicts and achieving optimal outcomes. This evaluation entails carefully examining how Nash bargaining principles can be applied in the context of government-contractor relations and provides insights into its potential effectiveness. An analysis of mining contractors' extraction strategies from a government perspective reveals significant government influence attributed to its significant capital investments. This dominance gives government institutions more bargaining power and shapes the dynamics of policy formulation and implementation. By quantifying the respective benefits for each participant, it becomes clear that government policies related to sustainable and maximal production have a significant contribution, which emphasizes the central role of government intervention. On the contrary, mining contractors follow these policies with a relatively smaller share, which indicates an inherent power imbalance in this relationship. This dominance translates into enhanced bargaining power for government entities. After calculating the respective payoffs for each participant, it becomes evident that the government's stake in sustainable and maximum production policies amounts to 838,866 billion rials and 838,264 billion rials, respectively. In contrast, mining contractors' shares in these policies stand at 65,642 billion rials and 64,126 billion rials, respectively.

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References

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Sharif Journal of Industrial Engineering & Management
Volume 40, Issue 2
March 2025
Pages 73-85

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