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The economic evolution of petroleum property rights in the United States: a test of the Demsetz hypothesis

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  • Gary Libecap
  • James L. Smith

Abstract

We examine Harold Demsetz’s (1967) prediction that property rights will emerge and be refined once the benefits of doing so exceed the costs. We follow the development of property rights to oil and gas deposits in the United States to test this prediction. The pattern of development has been influenced by technological change, shifts in relative prices, information asymmetries, and political factors. While the pattern follows the broad outlines sketched by Demsetz; details of the bargaining process, the importance of information asymmetries and price volatility, and the key role of politics have resulted in property rights structures that would not have been predicted in a strict neo-classical sense. Our analysis provides insights regarding the structure and scope of voluntary unitization agreements, and appropriate limits on the practice of compulsory unitization by the states.

Suggested Citation

  • Gary Libecap & James L. Smith, 2001. "The economic evolution of petroleum property rights in the United States: a test of the Demsetz hypothesis," ICER Working Papers 14-2001, ICER - International Centre for Economic Research.
    • Handle: RePEc:icr:wpicer:14-2001
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