IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v153y2018icp139-146.html
   My bibliography  Save this article

Security Bonding in Unconventional Gas Development: Evidence from an Economic Experiment

Author

Listed:
  • Ancev, Tiho
  • Merrett, Danielle

Abstract

Recent developments in drilling technology promise significant benefits from extraction of unconventional gas. At the same time, the deployment of this technology creates serious concerns about the negative effects it may have on agriculture and on the environment. This paper applies a behavioural approach to explore possibilities for improved negotiation outcomes between unconventional gas developers and host landowners using economic experiments in the laboratory. The paper specifically focuses on the role that security bond could have in resolving some of the conflicts surrounding unconventional gas development. The empirical findings from the economic experiments show that a security bond deposited by a developer prior to the commencement of the gas extraction can result with improved negotiation outcomes between developers and host landowners. Our findings suggest that the security bond is effective because it mitigates the effects of loss averse behaviour by landowners that do not hold sub-surface extraction rights.

Suggested Citation

  • Ancev, Tiho & Merrett, Danielle, 2018. "Security Bonding in Unconventional Gas Development: Evidence from an Economic Experiment," Ecological Economics, Elsevier, vol. 153(C), pages 139-146.
  • Handle: RePEc:eee:ecolec:v:153:y:2018:i:c:p:139-146
    DOI: 10.1016/j.ecolecon.2018.07.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800917309333
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ecolecon.2018.07.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Charles F. Mason & Lucija A. Muehlenbachs & Sheila M. Olmstead, 2015. "The Economics of Shale Gas Development," Annual Review of Resource Economics, Annual Reviews, vol. 7(1), pages 269-289, October.
    2. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    3. Andreoni, James, 1988. "Why free ride? : Strategies and learning in public goods experiments," Journal of Public Economics, Elsevier, vol. 37(3), pages 291-304, December.
    4. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-261, April.
    5. Lucija Muehlenbachs & Elisheba Spiller & Christopher Timmins, 2015. "The Housing Market Impacts of Shale Gas Development," American Economic Review, American Economic Association, vol. 105(12), pages 3633-3659, December.
    6. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
    7. Ben Greiner, 2015. "Subject pool recruitment procedures: organizing experiments with ORSEE," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(1), pages 114-125, July.
    8. Todd L. Cherry & Peter Frykblom & Jason F. Shogren, 2002. "Hardnose the Dictator," American Economic Review, American Economic Association, vol. 92(4), pages 1218-1221, September.
    9. Hayes, D. J. & Fox, J. A. & Shogren, J. F., 2002. "Experts and activists: how information affects the demand for food irradiation," Food Policy, Elsevier, vol. 27(2), pages 185-193, April.
    10. Boyd, James, 2001. "Financial Responsibility for Environmental Obligations: Are Bonding and Assurance Rules Fulfilling Their Promise?," RFF Working Paper Series dp-01-42, Resources for the Future.
    11. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1039-1061.
    12. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    13. Thaler, Richard H, 1988. "The Ultimatum Game," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 195-206, Fall.
    14. Eckel, Catherine C. & Grossman, Philip J., 2008. "Men, Women and Risk Aversion: Experimental Evidence," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 113, pages 1061-1073, Elsevier.
    15. Jason F. Shogren & Joseph A. Herriges & Ramu Govindasamy, 1991. "Limits to Environmental Bonds: Lessons from the Labor Literature," Center for Agricultural and Rural Development (CARD) Publications 91-wp82, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    16. Shogren, Jason F. & Herriges, Joseph A. & Govindasamy, Ramu, 1993. "Limits to environmental bonds," Ecological Economics, Elsevier, vol. 8(2), pages 109-133, October.
    17. Boyd, James, 2001. "Financial Responsibility for Environmental Obligations: Are Bonding and Assurance Rules Fulfilling Their Promise?," Discussion Papers 10809, Resources for the Future.
    18. Cornwell, Laura & Costanza, Robert, 1994. "An experimental analysis of the effectiveness of an environmental assurance bonding system on player behavior in a simulated firm," Ecological Economics, Elsevier, vol. 11(3), pages 213-226, December.
    19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    20. Bodo Sturm & Joachim Weimann, 2006. "Experiments in Environmental Economics and Some Close Relatives," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 419-457, July.
    21. Costanza, Robert & Perrings, Charles, 1990. "A flexible assurance bonding system for improved environmental management," Ecological Economics, Elsevier, vol. 2(1), pages 57-75, April.
    22. Phelan, Anna (Anya) & Jacobs, Sander, 2016. "Facing the true cost of fracking; social externalities and the role of integrated valuation," Ecosystem Services, Elsevier, vol. 22(PB), pages 348-358.
    23. James, Alexander & Smith, Brock, 2017. "There will be blood: Crime rates in shale-rich U.S. counties," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 125-152.
    24. Kim, Byung-Cheol & Oliver, Matthew E., 2017. "Taming drillers through legislative action: Evidence from Pennsylvania’s shale gas industry," Resource and Energy Economics, Elsevier, vol. 50(C), pages 15-35.
    25. Gale, John & Binmore, Kenneth G. & Samuelson, Larry, 1995. "Learning to be imperfect: The ultimatum game," Games and Economic Behavior, Elsevier, vol. 8(1), pages 56-90.
    26. Jeroen C.J.M. van den Bergh (ed.), 1999. "Handbook of Environmental and Resource Economics," Books, Edward Elgar Publishing, number 801.
    27. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 209-219, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gueye, Mamadou & Quérou, Nicolas & Soubeyran, Raphael, 2020. "Social preferences and coordination: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 26-54.
    2. Alex Lehr & Jana Vyrastekova & Agnes Akkerman & René Torenvlied, 2018. "Horizontal and vertical spillovers in wage bargaining: A theoretical framework and experimental evidence," Rationality and Society, , vol. 30(1), pages 3-53, February.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    4. Jones, Luke & Cseh, Attila, 2021. "Earning responsibility increases risk taking among representative decision makers," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 317-329.
    5. Kim, Byung-Cheol & Oliver, Matthew E., 2017. "Taming drillers through legislative action: Evidence from Pennsylvania’s shale gas industry," Resource and Energy Economics, Elsevier, vol. 50(C), pages 15-35.
    6. Costa-Gomes, Miguel & Zauner, Klaus G., 2001. "Ultimatum Bargaining Behavior in Israel, Japan, Slovenia, and the United States: A Social Utility Analysis," Games and Economic Behavior, Elsevier, vol. 34(2), pages 238-269, February.
    7. Gerald Eisenkopf, 2018. "Unequal Incentives and Perceived Fairness in Groups," Games, MDPI, vol. 9(3), pages 1-18, September.
    8. Galliera, Arianna, 2018. "Self-selecting random or cumulative pay? A bargaining experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 72(C), pages 106-120.
    9. Friedrich Heinemann & Martin Kocher, 2013. "Tax compliance under tax regime changes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 225-246, April.
    10. Cox, James C. & Friedman, Daniel & Gjerstad, Steven, 2007. "A tractable model of reciprocity and fairness," Games and Economic Behavior, Elsevier, vol. 59(1), pages 17-45, April.
    11. Katarína Danková & Hodaka Morita & Maroš Servátka & Le Zhang, 2022. "Fairness concerns and job assignment to positions with different surplus," Southern Economic Journal, John Wiley & Sons, vol. 88(4), pages 1490-1516, April.
    12. Greiner, Ben & Vittoria Levati, M., 2005. "Indirect reciprocity in cyclical networks: An experimental study," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 711-731, October.
    13. Erkut, Hande, 2022. "Social norms and preferences for generosity are domain dependent," Games and Economic Behavior, Elsevier, vol. 131(C), pages 121-140.
    14. Masiliūnas, Aidas & Nax, Heinrich H., 2020. "Framing and repeated competition," Games and Economic Behavior, Elsevier, vol. 124(C), pages 604-619.
    15. Mamadou Gueye & Nicolas Quérou & Raphaël Soubeyran, 2018. "Does equity induce inefficiency? An experiment on coordination," Working Papers hal-02790603, HAL.
    16. Sara Aghakazemjourabbaf & Margaret Insley, 2018. "Optimal timing of harzardous waste clean-up under an environmental bond an a strict liability rule," Working Papers 1803, University of Waterloo, Department of Economics, revised 06 Jan 2018.
    17. Nathalie Colombier & David Masclet & Daniel Mirza & Claude Montmarquette, 2011. "Global Security Policies against Terrorism and the Free Riding Problem: An Experimental Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(5), pages 755-790, October.
    18. Erik O. Kimbrough & Alexander Vostroknutov, 2016. "Norms Make Preferences Social," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 608-638, June.
    19. Bruttel, Lisa & Stolley, Florian, 2020. "Getting a yes. An experiment on the power of asking," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 86(C).
    20. Olli Lappalainen, 2018. "Cooperation and Strategic Complementarity: An Experiment with Two Voluntary Contribution Mechanism Games with Interior Equilibria," Games, MDPI, vol. 9(3), pages 1-24, July.

    More about this item

    Keywords

    Natural resource rent; Security bond; Unconventional gas; Ultimatum game;
    All these keywords.

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:153:y:2018:i:c:p:139-146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.