Sooner or Safer? Bureaucracy in Oil and Gas Production

Bureaucratic rules are implemented in organizations with limited direct financial incentives for agents to pursue the policy desired by the principal. However, these constraints can lead to inflexibility and delay. We examine the effect of bureaucratic rules on oil and gas drilling, production, and pollution in Wyoming using the allocation of alternating square-mile land sections to private owners via the Pacific Railroad Acts as a natural experiment. Subsequent to allocation, extensive natural gas extraction from the Green River Formation, undiscovered at the time the land was assigned, has occurred with only limited changes to the initial land assignment. Delay for drilling permits on federal land, attributable to compliance with the National Environmental Policy Act, is higher than on private land. Consistent with the anticipated effect of delay, federal lands in aggregate see reduced drilling and production relative to private parcels. However, federal lands see significantly lower rates of oil and water spills, even within individual companies drilling on both types of land, suggesting a tradeoff between permitting expediency and environmental protection.