Projects Funded for Mark Agerton
A New Method to Jointly Estimate Yield Response and Crop Choice
- Matthieu Stigler
- Mark Agerton
Learning Where to Drill in Unconventional Shales
- Mark Agerton
Specific Objectives of the Project
Study whether and how three issues—selection on unobservable heterogeneity, learning about resource quality, and depletion—affect firms’ behavior in shale extraction. Understand what the implications are for energy prices in California agriculture and how unconventional shale resources might develop in California.
Project Report/Summary of Results
We often link increasing productivity in resource extraction to innovation in how firms extract. Yet resource quality—where—firms extract—is a key driver of productivity. Using a structural model and data from Louisiana's Haynesville shale, I disentangle the impacts of how and where firms extract natural gas. Mineral lease contracts, learning about geology, and prices actually explain more than half of growth in output per well—not just technological change. Neglecting this may lead to over-optimistic long-run supply forecasts. I also show that growth in output per well masked large distortions caused by mineral lease contracts, which reduced resource rents.
This work emphasizes the importance of accounting for interactions between institutions and unobserved resource quality in the supply of natural resources. It suggests that should shale resources be developed in California, we should be cautious about extrapolating productivity gains into the future.