Prorationing and Unitization Regulation of the Common Pool in Oil and Gas under Monopsony

摘要: For four decades beginning in the 1930s, U.S. oil and gas industry was regulated by a quota-supported price-oor instrument known as prorationing. Most contemporary economists (and many since), however, argued that unitization would have been more ecient form of regulation. This paper shows monopsony power held integrated pipeline/renery rms reverses conclusion. Absent regulation, underproduction dominates overproduction from common property supply. Thus unitization, which forces producers to internalize costs, causes output be further restricted. In contrast, prorationing severs price-setting ability monopsonist, so can increase rst-best, where marginal rents equal Pigouvian tax solves problem. Also discussed is how distributional eciency eects forced federal state regulators similar regulatory outcomes, using mix unitization.