ALTERNATIVE BID VARIABLES AS INSTRUMENTS OF OCS LEASING POLICY

Walter J. Mead, Asbjorn Moseidjord and Dennis D. Muraoka

Contemporary Economic Policy, 1984, vol. 2, issue 5, 30-43

Abstract: Prior to 1979, a cash bonus was used almost exclusively as the bid variable at outer continental shelf (OCS) lease auctions. Criticisms of the cash bonus as a bid variable led to the OCS Lands Act Amendments of 1978 which stipulated that alternative bid variables be employed on a portion of the leases issued over a five‐year trial period. The alternative bid variables include net profit share, royalty rate, and work commitment Each of these bid variables is analyzed to determine the extent to which it (a) promotes economic efficiency, (b) returns fair market value to the government, (c) identifies and selects the most efficient firm to operate the lease, (d) promotes optimal risk sharing between the lessee and the government, and (e) minimizes administrative costs This analysis has led the authors to conclude that while no bid variable is perfect, the traditional cash bonus is preferred

Date: 1984
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