INFORMATION EXTERNALITIES: INFORMATION DISSEMINATION AS A POLICY TOOL TO ACHIEVE EFFICIENT INVESTMENT DECISIONS IN A TWO-FIRM OIL DRILLING INDUSTRY
Abstract
This study is divided into three parts: the literature survey, theoretical model, the computer model and its results. The literature survey covers the articles which discuss the presence of information externalities when two firms are drilling for oil in proximity to each other. The survey extends to those articles which discuss the feasibility of the federal government as a source of information to reduce the uncertainty surrounding drilling outcomes. Finally, the literature survey brings to light those articles which provide the theoretical basis for this work. The model section provides the basic elements of the game theoretical model as it is found in the literature and then presents the extended model necessary for introducing a federal authority as a source of disseminating drilling information. The computer model section explains the nature and results of the computer model used to compute the payoffs to the two firms as a result of the strategies they adopt. These strategies depend on the information state that exists at the time the firms make their decisions. The results of this chapter show the sensitivity of a firm's investment decision to optimistic and pessimistic information, as well as to the amount of information available. Finally, the computer model is used to show the feasibility of estimating the amount of information needed to encourage socially efficient behavior when this information is disseminated by a public authority.
Degree
Ph.D.
Subject Area
Economic theory
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