Collaborative Research: Technological Shocks and Institutional Effectiveness under Heterogeneous Risk

Knox College, Galesburg IL

Investigators

Abstract

How effective are existing regulations are at managing the risks from high volume hydraulic fracturing (HVHF), also known as ?fracking?? HVHF is a technique for producing oil and gas from shale formations that has revolutionized the domestic energy landscape. In the U.S., states are the primary regulators of oil and gas production, so there is variation in the types of and effectiveness of regulations in-use. Many of these regulations were enacted in the early-to-mid 1900s and were designed to manage conventional oil and gas production. Given the rapid expansion of HVHF across the country, this project asks whether these regulations are still appropriate, given the differences between conventional and HVHF production techniques. To answer this, the project first develops a cross-state database of regulations in-use to manage oil and gas production, which will be available online for the public, state regulators, journalists, and academics to explore how different states manage oil and gas production and how effective those regulations are. Second, the project engages landowners in focus groups to better understand the perspectives of people impacted, both positively and negatively, by the HVHF boom. Third, the project uses a series of laboratory economic experiments to advance scholarly understanding, in a controlled setting, of how different regulations incentivize individuals? decisions on whether to lease their oil and gas rights for production. Scholars have long been interested in the linkages between governance institutions and the sustainability of common-pool resources (CPR), of which oil and gas are canonical examples. Institutions that facilitate efficient collective action are often seen as the best hope for a solution to the tragedy of the commons, and the long-endurance of institutions is often viewed as a best-case scenario. However, long-enduring institutions also lock participants in to a particular path that may or may not be efficient when exogenous changes occur. This project expands on the intellectual tradition of CPR scholars, by examining how a solution to a CPR dilemma today can exacerbate a different CPR dilemma tomorrow. The problem with such institutions is not necessarily the possibility of resource collapse (i.e. a tragedy of the commons), but rather of continued action in the face of substantially changed circumstances. CPR governance institutions can continue to be used to facilitate collective action, long after collective action ceases to be efficient or equitable for the group. Previously stable and efficient institutions may now have the effect of redistributing rents from those who are least vulnerable to the new risks introduced by an exogenous shock to those who are most vulnerable. This insight is a significant contribution to literature on institutions and decision-making. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.