Oilmen s Dilemma


Oilmen’s Dilemma[8]

Oil doesn’t respect property rights. Often a pool of oil will lie below the land of several drillers. Oil extraction can never remove all the oil from an underground pool. When one company owns the land above an oil pool, it carefully extracts as much oil as possible. When multiple players own this land, however, they all have an incentive to extract oil as quickly as possible. If you take the cautious approach while I go for speed, I’ll get much more oil than you. Much of a shared oil pool becomes permanently lost to extraction when parties attempt to remove the oil too quickly.[9] The landowners consequently find themselves in a prisoners’ dilemma. Regardless of what the other landowner does, you are always better off with rapid extraction. All landowners, however, would be better off if they all proceeded more cautiously.

[8]McMillan (1992), 66 applies prisoners’ dilemma to the oil extraction problem.

[9]Ibid.




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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