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Estimating Potential Social Losses from Market Failure: Oil Exploration in Alberta

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  • Daniel R. Siegel

Abstract

This article presents estimates of the potential social losses caused by market failure in oil exploration in the Rainbow-Zama region of Alberta. We construct models that predict exploratory drilling for noncooperative Nash equilibrium with and without taxes, and for the social optimum. In the absence of appropriate property rights or taxes, estimated losses are of the order of 80% of potential rents. With taxes, estimated losses are of the order of 30%. We show that actual drilling resembles that predicted by the noncooperative model with taxes rather than by the optimal model. This indicates that the land tenure system in Alberta did not effectively ameliorate the market failure not eliminated by taxation.

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  • Daniel R. Siegel, 1985. "Estimating Potential Social Losses from Market Failure: Oil Exploration in Alberta," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 537-552, Winter.
    • Handle: RePEc:rje:randje:v:16:y:1985:i:winter:p:537-552
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    Cited by:

    1. Lindholt, Lars, 2015. "The tug-of-war between resource depletion and technological change in the global oil industry 1981–2009," Energy, Elsevier, vol. 93(P2), pages 1607-1616.
    2. Fissel, Benjamin E & Glibert, Ben, 2010. "Exogenous Productivity Shocks and Capital Investment in Common-pool Resources," University of California at San Diego, Economics Working Paper Series qt1qp1g9ts, Department of Economics, UC San Diego.
    3. Emilio Castillo, 2020. "Mineral Exploration and the Discovery of New Deposits," Working Papers 2020-06, Colorado School of Mines, Division of Economics and Business.
    4. Lars Lindholt, 2013. "The tug-of-war between resource depletion and technological change in the global oil industry 1981 - 2009," Discussion Papers 732, Statistics Norway, Research Department.
    5. Castillo, Emilio & Roa, Cintia, 2021. "Defining geological maturity: The effect of discoveries on early-stage mineral exploration," Resources Policy, Elsevier, vol. 74(C).

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