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Shifting the Bidding Game: Reform of Auction Design for Petroleum Exploration and Production Rights in Argentina

Author

Listed:
  • Tomás Peruchín

    (Department of Economics, Universidad de San Andrés)

Abstract

This thesis examines the design of petroleum exploration and production (E&P) rights auctions in Argentina,emphasizing the theoretical and policy implications of President Milei’s 2024 Ley Bases reform to Hydrocarbon Law 17,319, which introduced royalty bidding as an alternative to the prevailing investment-commitment framework.The study develops a Bayesian auction model in which firms, facing incomplete information, compete after receiving noisy private signals regarding the tract’s underlying value. Two mechanisms are examined: (i) work-commitment bidding, where competition is based on the scale of exploration and production expenditures under a flat royalty; and (ii) royalty bidding, where firms bid a royalty rate rather than committing to a fixed investment level.The symmetric Bayesian Nash equilibrium is characterized by numerically solving coupled integro-differential equations,calibrated to the specific conditions of Argentina’s hydrocarbon sector.The analysis reveals a key policy trade-off: royalty bidding enhances government rent capture but exposes the state to greater fiscal volatility, whereas work-commitment schemes provide more stable, though typically smaller, revenue flows, limiting the upside from high-quality tracts.

Suggested Citation

  • Tomás Peruchín, 2025. "Shifting the Bidding Game: Reform of Auction Design for Petroleum Exploration and Production Rights in Argentina," Young Researchers Working Papers 20, Universidad de San Andres, Departamento de Economia, revised Nov 2025.
    • Handle: RePEc:sad:ypaper:20
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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