The Common Pool, Bargaining, and the Rule of Capture

James Smith

Economic Inquiry, 1987, vol. 25, issue 4, 631-44

Abstract: Firms producing from a single oilfield face the common-pool problem: how to divide production and profits among themselves. The rule of capture creates competition am ong them to produce the oil before anyone else does and a tendency fo r overproduction. Private bargaining among the firms can avoid the wa steful production practices associated with the rule of capture and i ncrease joint profits. This paper explores the structure and expected outcome of the common-pool problem, and demonstrates that smaller pr oducers hold a bargaining advantage that is not easily overcome by la rger producers or neutral arbitrators. Copyright 1987 by Oxford University Press.

Date: 1987
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