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The economic evolution of petroleum property rights in the United States

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  • Gary D. Libecap
  • James L. Smith

Abstract

We examine Harold Demsetz's (1967) prediction that property rights emerge and are refined as the benefits of doing so exceed the costs in the context of oil and gas resources in the U.S. Familiar influences on the development of petroleum property rights, technology, market demand, and politics, provide support for the hypothesis, and those issues are examined. Our primary contribution is to demonstrate the important role of a less familiar factor, the presence in the reservoir of both oil and gas with differentially volatile prices. This factor has affected the nature of the property rights assigned with unitization, an institutional arrangement to internalize the common pool externality. Information asymmetries and conflicting price expectations have resulted in unit agreements that would not have been predicted in a strict neo-classical sense. Our analysis provides new insights regarding the nature of voluntary unitization contracts, inherent limits to producers' ability to internalize externalities, and the welfare implications of compulsory unitization.

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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 25-2002.

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Length: 31 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:icr:wpicer:25-2002

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Cited by:
  1. Boyce, John R. & Nøstbakken, Linda, 2011. "Exploration and development of U.S. oil and gas fields, 1955-2002," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 891-908, June.
  2. Gary D. Libecap, 2013. "Addressing Global Environmental Externalities: Transaction Costs Considerations," NBER Working Papers 19501, National Bureau of Economic Research, Inc.
  3. Edwyna Harris, 2007. "Dams And Disputes: Water Institutions In Colonial New South Wales, Australia, 1850-1870," Development Research Unit Working Paper Series 08-07, Monash University, Department of Economics.
  4. Bhattacharya, Haimanti & Lueck, Dean, 2009. "The role of property rights in determining the environmental quality-income relationship," Ecological Economics, Elsevier, vol. 68(10), pages 2511-2524, August.
  5. Gary D. Libecap, 2010. "Water Rights and Markets in the U.S. Semi Arid West: Efficiency and Equity Issues," ICER Working Papers 30-2010, ICER - International Centre for Economic Research.
  6. Hawke, Richard, 2006. "Improving the Water Allocation Framework in New Zealand," Occasional Papers 06/9, Ministry of Economic Development, New Zealand.
  7. Gary Libecap, 2007. "Regulation and Deregulation: Property Rights Allocation Issues in De Regulation of Common Pool Resources," ICER Working Papers 28-2007, ICER - International Centre for Economic Research.

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