Bidding and Drilling under Uncertainty: An Empirical Analysis of Contingent Payment Auctions

Journal Article (Journal Article)

Auctions are often used to sell assets whose future cash flows require the winner to make postauction investments. When winners’ payments are contingent on these cash flows, auction design can influence both bidding and incentives to exert effort after the auction. We propose a model of contingent payment auctions that links auction design to postauction economic activity. In the context of oil leases in the Permian Basin, we show that moral hazard affects the relative revenue ranking of different auction designs. Among a large class of alternatives, the observed design cannot be changed to increase both revenues and drilling rates.

Full Text

Duke Authors

Cited Authors

  • Bhattacharya, V; Ordin, A; Roberts, JW

Published Date

  • May 1, 2022

Published In

Volume / Issue

  • 130 / 5

Start / End Page

  • 1319 - 1363

Electronic International Standard Serial Number (EISSN)

  • 1537-534X

International Standard Serial Number (ISSN)

  • 0022-3808

Digital Object Identifier (DOI)

  • 10.1086/718916

Citation Source

  • Scopus