The authors model entry incentives in auctions with risk-neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic. The presence of too many potential bidders raises coordination costs that detract from welfare. The authors show that the seller and...

The risk-neutral independent-private-values (IPV) auction model produces curious results regarding the use of reservation prices: no matter how many bidders, the seller should announce a fixed reservation price above his true value. This is notable since the seller gains by adopting an...

We examine Harold Demsetz's prediction that property rights emerge as the benefits of doing so exceed the costs in the context of oil and gas resources in the United States. Familiar influences on the development of petroleum property rights, technology, market demand, and politics provide...

This paper extends financial option theory by developing a methodology for the valuation of claims on a real asset: an offsho re petroleum lease. Several theoretical and practical problems, not p resent in applying option pricing theory to financial assets, are add ressed. Most importantly, the...

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...

A current trend among oil-producing nations with private oil sectors is to move toward tax systems that are based upon pr ofits rather than production. The authors present a case study of wha t can go wrong with profit-based tax schemes. They study the implemen tation of the net profit share...