Extracting Common Oil: Cooperation or Competition?

Posted: 12 Feb 2001

See all articles by Rognvaldur Hannesson

Rognvaldur Hannesson

Norwegian School of Economics (NHH); Norwegian School of Economics (NHH) - Department of Economics

Abstract

This paper considers how likely it is that a given number of agents who share an homogeneous oil reservoir will exploit the reservoir for their common benefit. A game? Theoretical model is used, examining whether one agent would profit from deviating from the cooperative strategy, given that the remaining agents would follow a subgame? Perfect retaliation strategy. The sensitivity of the cooperative solution to the number of agents, the time it takes to discover a deviation, the value of production relative to investment, and the discount rate, is examined. It is found that the cooperative solution is very sensitive to the number of agents; with more than three agents the cooperative solution becomes very unlikely.

Suggested Citation

Hannesson, Rognvaldur, Extracting Common Oil: Cooperation or Competition?. The Energy Journal, Vol. 21, Pp. 105-120, 2000, Available at SSRN: https://ssrn.com/abstract=246342

Rognvaldur Hannesson (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 959 260 (Phone)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

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