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How Best to Auction Oil Rights

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Abstract

I study the design of oil rights auctions. A good auction design promotes both an efficient assignment of rights and competitive revenues for the seller. The structure of bidder preferences and the degree of competition are key factors in determining the best design. With weak competition and additive values, a simultaneous first-price sealed-bid auction may suffice. With more complex value structures, a dynamic auction with package bids, such as the clock-proxy auction, likely is needed to promote the efficiency and revenue objectives. Bidding on production shares, rather than bonuses, typically increases government take by reducing oil company risk.

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File URL: http://www.cramton.umd.edu/papers2005-2009/cramton-auctioning-oil-rights.pdf
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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 06oil.

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Length: 24 pages
Date of creation: 2005
Date of revision: 2005
Publication status: Published in Macartan Humphreys, Jeffrey Sachs, Joseph Stiglitz, eds., Escaping the Resource Curse, forthcoming, 2006.
Handle: RePEc:pcc:pccumd:06oil

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Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu

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Keywords: Auctions; Oil Auctions; Market Design; Clock Auctions;

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References

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  1. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers, Stanford University, Department of Economics 02004, Stanford University, Department of Economics.
  2. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 779, Cowles Foundation for Research in Economics, Yale University.
  3. Peter Cramton & Jesse Schwartz, 2000. "Collusive Bidding in the FCC Spectrum Auctions," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1210, Econometric Society.
  4. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Peter Cramton & Yoav Shoham & Richard Steinberg, 2004. "Combinatorial Auctions," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 04mit, University of Maryland, Department of Economics - Peter Cramton, revised 2004.
  6. Peter Cramton, 1997. "The FCC Spectrum Auctions: An Early Assessment," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 6(3), pages 431-495, 09.
  7. Hendricks, Kenneth & Porter, Robert H, 1996. "The Timing and Incidence of Exploratory Drilling on Offshore Wildcat Tracts," American Economic Review, American Economic Association, American Economic Association, vol. 86(3), pages 388-407, June.
  8. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 38(2), pages 355-372, 06.
  9. Lawrence M. Ausubel & Peter Cramton, 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(2-3), pages 480-493, 04/05.
  10. R. Preston McAfee & John McMillan, 1996. "Analyzing the Airwaves Auction," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(1), pages 159-175, Winter.
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Cited by:
  1. Frederick van der Ploeg & Dominic Rohner, 2010. "War and natural resource exploitation," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 481, Institute for Empirical Research in Economics - University of Zurich.
  2. A. Mochon & Y. Saez & J. Gómez-Barroso & P. Isasi, 2011. "The Clock Proxy Auction for Allocating Radio Spectrum Licenses," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 37(4), pages 411-431, April.

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