Working Paper: NBER ID: w25712
Authors: Thomas R. Covert; Richard L. Sweeney
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.
Keywords: oil and gas leasing; auctions; informal negotiations; Texas; mineral rights
JEL Codes: D44; L13; Q35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auctioned leases (D44) | bonus payments (J33) |
| negotiated leases (R33) | bonus payments (J33) |
| auctioned leases (D44) | output (C67) |
| auctioned leases (D44) | total seller revenue (L81) |
| negotiated leases (R33) | total seller revenue (L81) |