Is prorationing efficiency-enhancing or rent-seeking?: Evidence from a natural experiment

R. Dean Foreman and Andrew N. Kleit

Resources Policy, 2023, vol. 80, issue C

Abstract: Prorationing is used as a textbook definition of a solution to the market failure presented by the common pool aspects of oil and natural gas (see, for example, Spulber, 1989, 59). Yet, at the same time, the academic literature on this question is severely limited. To fill this void, we analyze a recent natural experiment in Oklahoma to determine the impact of rule changes that increased the stringency of prorationing and constrained natural gas production at the well level for one year. Prorationing in Oklahoma no longer serves to address common pool problems, as the affected hydraulically fractured wells do not suffer from common pool problems. Instead, we show that prorationing reduced natural gas production by large companies but had a significantly weaker impact on the production by small companies as well as those headquartered in Oklahoma. This gave the less affected companies an important competitive advantage. These findings are generally consistent with the positions that companies took to advocate for and against prorationing. The regulations can therefore be interpreted as a form of rent-seeking, with their proponents benefitting by imposing production limitations on their rivals. This work stimulates questions about the implications of prorationing in other states.

Keywords: Crude oil export ban; Refining; Rent-seeking- (search for similar items in EconPapers)
JEL-codes: L51 L71 Q48 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301420722005608
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:80:y:2023:i:c:s0301420722005608

DOI: 10.1016/j.resourpol.2022.103117

Access Statistics for this article

Resources Policy is currently edited by R. G. Eggert

More articles in Resources Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().