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Competitive Bidding for Offshore Petroleum Leases

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  • Douglas K. Reece

Abstract

This paper develops a formal model of competitive bidding to analyze some aspects of the federal offshore oil leasing system. The lease sales of interest are often characterized by small numbers of auction participants and by high levels of uncertainty regarding the true values of the leases offered. The model suggests that these circumstances may lead to the capture of a substantial fraction of economic rent by the purchases of leases. Indeed, our results suggest that the government should be willing to fund a substantial exploration effort to bring better presale information into the public domain. Some effects of the level of uncertainty and the number of competing bidders on industry efficiency are also considered.

Suggested Citation

  • Douglas K. Reece, 1978. "Competitive Bidding for Offshore Petroleum Leases," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 369-384, Autumn.
    • Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:369-384
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