Eminent domain policies are widely applied in many different settings, yet there is little empirical evidence measuring the effects of these policies on economic outcomes. The welfare effects of these policies are ambiguous whereby the ability to bypass costly holdout property rights owners may be beneficial, the revocation of exclusion rights generally leads to lower prices for owners. In this paper, I use variation in state-level policies to quantify some of the costs and benefits of eminent domain policies in the context of oil and natural gas extraction. These policies are designed to balance the tension between preserving private property ownership and allowing publicly beneficial projects to proceed. I find that production efficiency gains are greatest when targeted to the scale of economic use, a gain of approximately $2,591 per acre, and marginal production losses from policies that do not strictly regulate firms’ drilling behavior. Further, I find evidence of contracting losses for private property owners that negotiate late, resulting in a 30% decrease in contract concessions benefiting them. Finally, the study documents the industry changes in contracting costs more broadly.
Areas of Focus: Energy Markets
, Fossil Fuels
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.
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...