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Competition and Unitization in Oil Extraction: A Tale of Two Tragedies

Author

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  • Mohan Vijay

    (Deakin Business School)

  • Goorha Prateek

    (Deakin Business School)

Abstract

This paper compares two organizational modes for extracting oil from a common pool: unitization and competitive extraction. The analysis suggests that the general presumption that unitization is surplus enhancing relative to competitive extraction may not always be valid due to contractual incompleteness associated with unitization contracts. While competitive extraction suffers from the tragedy of the commons, unitization can be subject to the dual tragedy of the anticommons. This provides an explanation for the puzzle confronting the oil industry that firms are often reluctant to voluntarily enter unitization agreements.

Suggested Citation

  • Mohan Vijay & Goorha Prateek, 2008. "Competition and Unitization in Oil Extraction: A Tale of Two Tragedies," Review of Law & Economics, De Gruyter, vol. 4(1), pages 519-561, December.
    • Handle: RePEc:bpj:rlecon:v:4:y:2008:i:1:n:24
    DOI: 10.2202/1555-5879.1264
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    References listed on IDEAS

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    8. Libecap, Gary D & Smith, James L, 1999. "The Self-Enforcing Provisions of Oil and Gas Unit Operating Agreements: Theory and Evidence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 526-548, July.
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    Cited by:

    1. Prateek Goorha & Vijay Mohan, 2016. "Toward a theory of Smart Institutions," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-23, December.

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