Divide and conquer: multiple leasing in common pool oil fields

A theoretic model is developed to analyse strategic leasing behaviours of U.S. landowners in a non-exclusively owned common oil pool. Oil field development is modelled as a simultaneous-move two-stage non-cooperative game. The landowners choose leasing strategies in the first stage; independent lease operators choose extraction strategies in the second. Ownership structure is distinguished from operation structure and their relationship analyzed. It is shown that, in a non-exclusively owned oil field, it is individually rational for a landowner to subdivide his landholding and delegate production rights to multiple independent firms, although more dispersed production control leads to heavier common pool losses.