Thom Covert
Little is known about how firms learn to use new technologies. Using novel data on inputs, profits, and information sets, I study how oil companies learned to use hydraulic fracturing technology in North Dakota between 2005-2012. Firms only partially learned to make profitable input choices, capturing just 60% of possible profits in 2012. To understand why, I estimate a model of input use under technology uncertainty. Firms chose fracking inputs with higher expectations but lower uncertainty about profits, consistent with passive learning but not active experimentation. Most firms over-weighed their own information. These results provide evidence of impediments to learning.
Areas of Focus: Energy Markets, Fossil Fuels, Hydraulic Fracturing
Definition
Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Definition
Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...
Definition
Hydraulic Fracturing
Hydraulic fracturing is perhaps the most important innovation in the energy system in the last half century, but nearby communities are concerned about its potential effects on water quality, public...