Relinquishing Riches: Auctions versus Informal Negotiations in Texas Oil and Gas Leasing
American Economic Review
vol. 113,
no. 3, March 2023
(pp. 628-63)
Abstract
This paper compares outcomes from informally negotiated oil and gas leases to those awarded via centralized auction. We focus on Texas, where legislative decisions in the early twentieth century assigned thousands of proximate parcels to different mineral allocation mechanisms. We show that during the fracking boom, which began unexpectedly decades later, auctioned leases generated at least 55 percent larger up-front payments and 40 percent more output than negotiated leases did. These results suggest large potential gains from employing centralized, formal mechanisms in markets that traditionally allocate in an unstructured fashion, including the broader $3 trillion market for privately owned minerals.Citation
Covert, Thomas R., and Richard L. Sweeney. 2023. "Relinquishing Riches: Auctions versus Informal Negotiations in Texas Oil and Gas Leasing." American Economic Review, 113 (3): 628-63. DOI: 10.1257/aer.20191594Additional Materials
JEL Classification
- D44 Auctions
- L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
- Q35 Hydrocarbon Resources