An Analysis of Alternative Bidding Systems for Leasing Offshore Oil

Douglas K. Reece

Bell Journal of Economics, 1979, vol. 10, issue 2, 659-669

Abstract: This study utilizes a formal model of competitive bidding to analyze some alternative procedures for selling offshore oil leases. We assume that the population of leases to be sold contains tracts having both positive and negative true values and that firms are able to obtain informative, but highly uncertain, estimates of the true value of each tract. We derive firms' Nash equilibrium bidding strategies for bonus, profit-share, and a form of royalty bidding and then analyze the expected division of economic rent between buyer and seller for the three bidding systems.

Date: 1979
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