Testing for Non-jointness in Oil and Gas Exploration: A Variable Profit Function Approach.

The empirical validity of the hypothesis of nonjointness is investigated in the context of a multiple-output production process that utilizes both fixed and variable inputs. Specifically, global tests of the hypotheses of almost nonjointness in the input quantities and prices, and separability of inputs and outputs, are conducted using data on oil and natural gas exploration in Alberta, Canada. Based on estimation of a generalized linear-Generalized Leontief variable profit function, the authors reject the separability hypothesis, but not the nonjointness hypothesis. Empirical issues concerning oil and gas exploration activity are examined using the maximum likelihood estimates obtained under nonjointness. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.