Wednesday, February 26, 2020 at 11:40am to 1:10pm
Uris Hall, 498
Thomas Covert - University of Chicago
Relinquishing Riches: Auctions vs Informal Negotiations in Texas Oil and Gas Leasing
Abstract: This paper compares outcomes from informally negotiated oil and gas leases to those awarded via centralized auction. We focus on Texas, where legislative decisions in the early twentieth century assigned thousands of proximate parcels to different mineral allocation mechanisms. We show that during the fracking boom, which began unexpectedly decades later, auctioned leases generated at least 40 percent larger up-front payments and 60 percent more output than negotiated leases did. These results suggest large potential gains from employing centralized, formal mechanisms in markets that traditionally allocate in an unstructured fashion, including the broader $3 trillion market for privately owned minerals.