Publication Detail

Strategic Decision-Making with Information and Extraction Externalities: A Structural Model of the Multi-Stage Investment Timing Game in Offshore Petroleum Production

UCD-ITS-RP-13-60

Reprint

Sustainable Transportation Energy Pathways (STEPS)

Available online at: DOI: 10.1162/REST_a_00319

Suggested Citation:
Lin Lawell, C.-Y. Cynthia (2013) Strategic Decision-Making with Information and Extraction Externalities: A Structural Model of the Multi-Stage Investment Timing Game in Offshore Petroleum Production. The Review of Economics and Statistics 95 (5), 1601 - 1621

When individual petroleum-producing firms make their exploration and development investment timing decisions, positive information externalities and negative extraction externalities may lead them to interact strategically with their neighbors. This paper examines whether the seinefficient strategic interactions take place by estimating a structural econometric model of the firms’ multi-stage investment timing game. Results show that firms interact strategically on small tracts but not on large tracts. For small tracts, having a neighboring tract explored reduces real profits by about $26 million, while having a neighboring tract developed raises real profits by about $3.5 million.