Abstract

This paper compares two organizational modes for extracting oil from a common pool: unitization and competitive extraction. The analysis suggests that the general presumption that unitization is surplus enhancing relative to competitive extraction may not always be valid due to contractual incompleteness associated with unitization contracts. While competitive extraction suffers from the tragedy of the commons, unitization can be subject to the dual tragedy of the anticommons. This provides an explanation for the puzzle confronting the oil industry that firms are often reluctant to voluntarily enter unitization agreements.

Submitted: January 16, 2008 · Accepted: September 7, 2008 · Published: December 28, 2008

Recommended Citation

Mohan, Vijay and Goorha, Prateek (2008) "Competition and Unitization in Oil Extraction: A Tale of Two Tragedies," Review of Law & Economics: Vol. 4 : Iss. 1, Article 24.
DOI: 10.2202/1555-5879.1264
Available at: http://www.bepress.com/rle/vol4/iss1/art24