Relinquishing Riches: Auctions vs Informal Negotiations in Texas Oil and Gas Leasing

Thomas R. Covert and Richard Sweeney

No 25712, NBER Working Papers from National Bureau of Economic Research, Inc

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 upfront 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.

JEL-codes: D44 L13 Q35 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-des and nep-ene
Note: EEE IO
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Citations: View citations in EconPapers (10)

Published as Thomas R. Covert & Richard L. Sweeney, 2023. "Relinquishing Riches: Auctions versus Informal Negotiations in Texas Oil and Gas Leasing," American Economic Review, vol 113(3), pages 628-663.

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