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Split-Estate Negotiations: The Case of Coal-Bed Methane

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  • Chouinard Hayley H

    (Washington State University)

  • Steinhoff Christina

    (Washington State University)

Abstract

Coal-bed methane is an emerging contributor to the US energy supply. Split estates, where landowners control the surface and the energy companies lease the rights to the underground gas from the federal government, often impede successful negotiations for methane extraction. We provide an extensive form representation of the dynamic game of the negotiation process for subsurface access. We then solve for a set of Nash equilibrium outcomes associated with the split estate negotiations. By examining the optimal offers we can identify methods to improve the likelihood of negotiations that do not break down and result in the gas developer resorting to the use of a bond. We examine how changes in transaction costs or entitlements will affect the outcomes, and support our finds with anecdotal evidence from actual negotiations for coal-bed methane access.

Suggested Citation

  • Chouinard Hayley H & Steinhoff Christina, 2008. "Split-Estate Negotiations: The Case of Coal-Bed Methane," Review of Law & Economics, De Gruyter, vol. 4(1), pages 233-258, July.
    • Handle: RePEc:bpj:rlecon:v:4:y:2008:i:1:n:12
    DOI: 10.2202/1555-5879.1132
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    References listed on IDEAS

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    3. Hylton Keith N, 2006. "Property Rules and Liability Rules, Once Again," Review of Law & Economics, De Gruyter, vol. 2(2), pages 137-191, September.
    4. Elizabeth A. Wilman, 1994. "Liability Versus Property Rule Protection for Surface Entitlements," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 42(2), pages 177-189, July.
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    Cited by:

    1. Fitzgerald Timothy, 2012. "Natural Resource Production under Divided Ownership: Evidence from Coalbed Methane," Review of Law & Economics, De Gruyter, vol. 8(3), pages 719-757, December.
    2. Timothy Fitzgerald, 2010. "Evaluating Split Estates in Oil and Gas Leasing," Land Economics, University of Wisconsin Press, vol. 86(2), pages 294-312.

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