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Security Bonding in Unconventional Gas Development: Evidence from an Economic Experiment

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  • Ancev, Tiho
  • Merrett, Danielle

Abstract

Recent developments in drilling technology promise significant benefits from extraction of unconventional gas. At the same time, the deployment of this technology creates serious concerns about the negative effects it may have on agriculture and on the environment. This paper applies a behavioural approach to explore possibilities for improved negotiation outcomes between unconventional gas developers and host landowners using economic experiments in the laboratory. The paper specifically focuses on the role that security bond could have in resolving some of the conflicts surrounding unconventional gas development. The empirical findings from the economic experiments show that a security bond deposited by a developer prior to the commencement of the gas extraction can result with improved negotiation outcomes between developers and host landowners. Our findings suggest that the security bond is effective because it mitigates the effects of loss averse behaviour by landowners that do not hold sub-surface extraction rights.

Suggested Citation

  • Ancev, Tiho & Merrett, Danielle, 2018. "Security Bonding in Unconventional Gas Development: Evidence from an Economic Experiment," Ecological Economics, Elsevier, vol. 153(C), pages 139-146.
    • Handle: RePEc:eee:ecolec:v:153:y:2018:i:c:p:139-146
    DOI: 10.1016/j.ecolecon.2018.07.007
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    More about this item

    Keywords

    Natural resource rent; Security bond; Unconventional gas; Ultimatum game;
    All these keywords.

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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