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Asymmetric Information, Information Externalities, And Efficiency: The Case Of Oil Exploration

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  • HENDRICKS, K.
  • KOVENOCK, D.

Abstract

In this article we examine the effect of private information and information externalties on the ex post efficiency of investment in oil exploration. We show that too much drilling tends to occur if firms believe that the area is likely to contain a sizeable pool of oil, and too little drilling occurs if the opposite is true. Bargaining with well-defined property rights to the information externality can eliminate underinvestment, but overinvestment remains a problem because firms have an incentive not to disclose their private information.

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Bibliographic Info

Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number 89-09.

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Length: 41 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:ubc:bricol:89-09

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Keywords: information ; oil fields ; petroleum resources ; energy ; entreprises;

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