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Auctioning Resource Rights

Author

Listed:
  • Kenneth Hendricks

    (Department of Economics, University of Wisconsin, Madison, Wisconsin 53706)

  • Robert H. Porter

    (Department of Economics, Northwestern University, Evanston, Illinois 60208)

Abstract

We review the issues involved in designing a mechanism for allocating resource rights. We focus on the case of exploration and development rights for oil and gas leases in US federal lands to highlight the trade-offs at play. The main issues concern the design of the lease contract, the design of the auction, and the supply of leases. A distinguishing feature of oil and gas leases is that the mechanism must solve not only the adverse selection problem of selecting the bidder with the highest valuation but also the moral hazard problem of ensuring that right holders make efficient investment decisions.

Suggested Citation

  • Kenneth Hendricks & Robert H. Porter, 2014. "Auctioning Resource Rights," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 175-190, October.
    • Handle: RePEc:anr:reseco:v:6:y:2014:p:175-190
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-091912-151752
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    Citations

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    Cited by:

    1. François Castonguay & Pierre Lasserre, 2016. "Resource Agency Relationship with Privately Known Exploration and Extraction Costs," CIRANO Working Papers 2016s-56, CIRANO.
    2. Anthony J. Venables, 2016. "Using Natural Resources for Development: Why Has It Proven So Difficult?," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 161-184, Winter.

    More about this item

    Keywords

    auctions; leases; oil and gas; royalty;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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