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The Common Pool, Bargaining, and the Rule of Capture

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  • Smith, James L

Abstract

Firms producing from a single oilfield face the common-pool problem: how to divide production and profits among themselves. The rule of capture creates competition am ong them to produce the oil before anyone else does and a tendency fo r overproduction. Private bargaining among the firms can avoid the wa steful production practices associated with the rule of capture and i ncrease joint profits. This paper explores the structure and expected outcome of the common-pool problem, and demonstrates that smaller pr oducers hold a bargaining advantage that is not easily overcome by la rger producers or neutral arbitrators. Copyright 1987 by Oxford University Press.

Suggested Citation

  • Smith, James L, 1987. "The Common Pool, Bargaining, and the Rule of Capture," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 631-644, October.
    • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:4:p:631-44
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    Cited by:

    1. Jongwook Kim & Joseph T. Mahoney, 2002. "Resource-based and property rights perspectives on value creation: the case of oil field unitization," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 225-245.
    2. 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.
    3. Stahn, Hubert & Tomini, Agnes, 2021. "Externality and common-pool resources: The case of artesian aquifers," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    4. 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.
    5. Holahan, Robert & Arnold, Gwen, 2013. "An institutional theory of hydraulic fracturing policy," Ecological Economics, Elsevier, vol. 94(C), pages 127-134.
    6. Boyce, John R. & Nøstbakken, Linda, 2011. "Exploration and development of U.S. oil and gas fields, 1955-2002," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 891-908, June.
    7. G. Marcus Cole, 2007. "Law and Order Without Coercion," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 22(Spring 20), pages 37-70.

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