Oil field unitization: contractual failure in the presence of imperfect information
An empirical analysis of the impact of transaction costs on contracting shows that imperfect in formation can seriously limit the effectiveness of private contracting. The case under study is the widespread failure of private crude oil producing firms to use US oil fields to reduce rent dissipation. Rent dissipation follows as multiple firms compete for migratory oil in common oil pools. Unitization is the obvious private contractual solution to rent dissipation. The authors argue that, despite large net gains from unitization, imperfect information and information asymmetries among the negotiating parties regarding lease values prevents consensus on unit shares. As a result, contracts are often not completed or only fragmented units are completed. 9 references, 1 figure, 4 tables.
- Export
- BibTeX
- Sources
- openalex