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Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties

Author

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  • Jason Brown
  • Timothy Fitzgerald
  • Jeremy G. Weber

Abstract

How does local versus absentee ownership of natural resources?and their associated income?shape the relationship between extraction and local income? Theory and empirics on natural resources and the broader economy have focused heavily on labor markets, largely ignoring the economic implications of payments to resource owners. We study how local ownership of oil and gas rights shapes the local income effects of extraction. For the average U.S. county that experienced an increase in oil and gas production from 2000 to 2013, increased royalty income and its associated economic stimulus accounted for more than two-thirds of the total income effect from extraction in 2013. Looking at gross royalty income in particular, which we derive from more than 2.2 million leases across the continental United States, we estimate that each dollar in royalty income led to $0.52 in non-royalty income, largely reflecting greater wage income in the service sector. {{p}} Overall, a U.S. county with complete local ownership of the subsurface captured 29 cents more of each dollar in production than a county with absentee ownership. For a county with the median shale production in 2013, this would translate to an extra $1,098 per capita, or 5.3 percent of total income.

Suggested Citation

  • Jason Brown & Timothy Fitzgerald & Jeremy G. Weber, 2016. "Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties," Research Working Paper RWP 16-12, Federal Reserve Bank of Kansas City, revised 08 Dec 2016.
  • Handle: RePEc:fip:fedkrw:rwp16-12
    DOI: 10.18651/RWP2016-12
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    File URL: https://doi.org/10.18651/RWP2016-12
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Joseph Marchand & Jeremy Weber, 2018. "Local Labor Markets And Natural Resources: A Synthesis Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 469-490, April.
    2. Marchand, Joseph & Weber, Jeremy, 2017. "The Local Effects of the Texas Shale Boom on Schools, Students, and Teachers," Working Papers 2017-12, University of Alberta, Department of Economics, revised 31 Jan 2019.
    3. Hitaj, Claudia & Weber, Jeremy & Erickson, Ken, 2018. "Ownership of Oil and Gas Rights: Implications for U.S. Farm Income and Wealth," Economic Information Bulletin 276228, United States Department of Agriculture, Economic Research Service.
    4. Jason Brown, 2017. "Response of Consumer Debt to Income Shocks: The Case of Energy Booms and Busts," Research Working Paper RWP 17-5, Federal Reserve Bank of Kansas City, revised 01 May 2017.
    5. Alexander G. James & Brock Smith, 2020. "Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution: Comment," American Economic Review, American Economic Association, vol. 110(6), pages 1905-1913, June.
    6. Hitaj, Claudia & Weber, Jeremy G. & Hopkins, Jeffrey W. & Erickson, Kenneth W., 2018. "Ownership of Oil and Gas Rights and Farm Sector Income and Wealth," 2018 Annual Meeting, August 5-7, Washington, D.C. 274316, Agricultural and Applied Economics Association.
    7. Ben Gilbert & Gavin Roberts, 2018. "Supply-side links in oil and gas markets," Working Papers 2018-04, Colorado School of Mines, Division of Economics and Business.

    More about this item

    Keywords

    Income growth; Gas; Shale; Royalties; Resource ownership; Oil;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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