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Title: Shale Gas Leases: Is Bargaining Efficient and What are the Implications for Homeowners if it is not?

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: With the dramatic growth of shale gas in the U.S., lease negotiations have become an important part of the energy landscape. Royalty payments are a potential source of benefit to homeowners and restrictions negotiated in lease clauses are a primary tool by which the shale gas industry is regulated. Bargaining associated with the transfer of mineral rights from lessor to lessee shares many features of the classic Coasian framework. If bargaining were indeed Coasian, efficiency would be achieved without the need for costly government oversight. Using a unique combination of data sets, we test for whether the lease negotiation process exhibits characteristics of Coasian efficiency in Tarrant Co., Texas. While our results show that important determinants of willingness-to-pay for avoiding shale gas development (e.g., income) do indeed affect bargaining outcomes, we also find significant differences across race groups, suggesting a failure of Coasian bargaining. Results of a hedonic analysis show that lease clauses are directly capitalized into housing values, meaning that failures of the lease negotiation process have important pecuniary implications. Moreover, lease clauses are correlated with the likelihood of certain kinds of violations, suggesting that they may also affect health and safety.

Url: http://www.colorado.edu/econ/seminars/SeminarArchive/2014-15/Timmins.pdf

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Authors: Timmins, Christopher; Vissing, Ashley

Publisher: Colorado University

Data Collections: IPUMS USA

Topics: Natural Resource Management, Other

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