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Learning by Drilling: Inter-Firm Learning and Relationship Persistence in the Texas Oilpatch

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  • Ryan Kellogg

Abstract

This paper examines the importance of learning-by-doing that is specific not just to individual firms, but to pairs of firms working together in a contracting relationship. Using new, detailed data from the oil and gas industry, I find that the joint productivity of an oil production company and its drilling contractor is enhanced significantly as they accumulate experience working together. This learning is relationship-specific: drilling rigs generally cannot fully appropriate the productivity gains acquired through experience with one production company to their work for another. This result is robust to other ex ante match specificities. Relationship-specific learning is consequential because it implies that relationship stability is important to productivity. When two firms accumulate experience working together, relationship-specific intellectual capital is created that cannot be appropriated to pairings with other firms. If the relationship is broken, this capital is destroyed and productivity decreases, thereby giving firms an incentive to maintain long-term relationships. Accordingly, the data indicate that production companies prefer to work with drilling rigs which they have accumulated considerable experience rather than those with which they have worked relatively little. I demonstrate that this contracting pattern is difficult to explain with switching costs or ex ante match specificities alone.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15060.

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Date of creation: Jun 2009
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Publication status: published as Ryan Kellogg, 2011. "Learning by Drilling: Interfirm Learning and Relationship Persistence in the Texas Oilpatch," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1961-2004.
Handle: RePEc:nbr:nberwo:15060

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Cited by:
  1. Lucas W. Davis, 2011. "Prospects for Nuclear Power," NBER Working Papers 17674, National Bureau of Economic Research, Inc.
  2. Carolyn D. Egelman & Dennis Epple & Linda Argote & Erica R.H. Fuchs, 2013. "Learning by Doing in a Multi-Product Manufacturing Environment: Product Variety, Customizations, and Overlapping Product Generations," NBER Working Papers 19674, National Bureau of Economic Research, Inc.
  3. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, vol. 25(C), pages 44-61.
  4. Gil, Ricard & Marion, Justin, 2009. "The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions," University of California Transportation Center, Working Papers qt2kb8p0cd, University of California Transportation Center.
  5. Ryan Kellogg, 2010. "The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling," NBER Working Papers 16541, National Bureau of Economic Research, Inc.
  6. Yuichiro Kamada & Fuhito Kojima, 2013. "Voter Preferences, Polarization, and Electoral Policies," Discussion Papers 12-021, Stanford Institute for Economic Policy Research.
  7. Machikita, Tomohiro & Ueki, Yasushi, 2012. "Impact of Production Linkages on Industrial Upgrading in ASEAN, the People’s Republic of China, and India: Organizational Evidence of a Global Supply Chain," ADBI Working Papers 399, Asian Development Bank Institute.
  8. Osmundsen, Petter & Rosendahl, Knut Einar & Skjerpen, Terje, 2012. "Understanding Rig Rates," UiS Working Papers in Economics and Finance 2012/9, University of Stavanger.
  9. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  10. Enghin Atalay, 2012. "Materials Prices and Productivity," Working Papers 12-11, Center for Economic Studies, U.S. Census Bureau.
  11. repec:wyi:journl:002193 is not listed on IDEAS
  12. Osmundsen, Petter & Roll, Kristin Helen & Tveterås, Ragnar, 2010. "Faster Drilling with Expercience?," UiS Working Papers in Economics and Finance 2010/7, University of Stavanger.
  13. Osmundsen, Petter & Roll, Kristin Helen & Tveteras, Ragnar, 2012. "Drilling speed—the relevance of experience," Energy Economics, Elsevier, vol. 34(3), pages 786-794.

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