This is an archived version of the PW Sources newsletter from Saturday, May 11, 2024. Sign up to receive PW Sources directly to your inbox here.

SHALE REVOLUTION

Last Thursday, Exxon completed its $60 billion acquisition of Pioneer Natural Resources, thereby becoming the largest shale oil producer in the Permian basin. The FTC has approved the merger on the condition that Pioneer CEO Scott Sheffield be banned from joining Exxon’s board due to alleged collusive activities and anticompetitive conduct.

In a 2020 chapter, BINLEI GONG analyzes the shale revolution, its impacts on crude oil and natural gas globally, and the future of energy sectors in the US and China:

“Marketization and commercialization are the keys to a significant breakthrough in the shale gas boom in the United States. In the United States, there is no mutual restraint among natural gas production, transportation, and sales activities. Third parties also have the right to bid for the transportation business that transports natural gas to downstream markets. This guarantees that natural gas producers and users have non-discriminatory access conditions for pipelines. As a result, thousands of companies are active in the shale gas industry, thereby ensuring the diversification of shale gas exploration and production entities. In many developing countries, however, state-owned oil companies or municipal engineering companies have monopoly power over natural gas supply infrastructure and have no motivation to innovate new technologies. The cooperation between large companies and small to medium size enterprises has promoted the rapid growth of the U.S. shale gas industry. Since 1999, two-thirds of the world’s oil and gas discoveries have come from only five private oil companies, including BP, ExxonMobil, Shell, Chevron and Total, all of which are active in the U.S. shale gas market. 50 percent to 70 percent investments of these large companies are spent on unconventional resources. In the medium and long term major projects, 91 percent of ExxonMobil’s funding and 88 percent of Shell’s funding are used in unconventional resources. The exploration and production business of large companies is outsourced to small companies and service companies. Given these stable supports, thousands of small and medium-sized independent oil and gas developers have the motivation and funding to innovate in different technical fields, which not only enriches and improves the industrial chain, but also promotes the rapid development of shale gas industry in the United States. This kind of cooperation mode is worthy of reference and attention of state-owned oil companies such as CNPC, Sinopec and CNOOC.”

+ “The oil industry as a whole is not especially, let alone perfectly, competitive; if it were, consumers would probably be worse off, not better.” Kate Arnoff on the FTC’s Sheffield ban. Link. And Ilia Murtazashvili looks at compulsory pooling and the shale boom. Link.

+  “Given the widespread benefits of increased domestic oil and gas production and the bundle of technologies that have helped give rise to those gains, one might consider why the resistance has coalesced around fracking and not some other aspect of development.” By Timothy Fitzgerald. Link. And see a GAO report on the effects of the 2015 repeal of the crude oil export ban. Link.

+  “We find that air quality effects and employment effects follow the boom-and-bust cycle, while climate impacts persist for generations well beyond the period of natural gas activity.” By Erin Mayfield, Jared Cohon, Nicholas Muller, Inês Azevedo, and Allen Robinson. Link. 

NEW RESEARCHERS

Insurance markets

EILIDH GEDDES is an Assistant Professor of Economics at the University of Georgia. Her job market paper examines the effects of price regulation in markets with strategic entry.

From the abstract:

“Regulators often enact price restrictions with the goal of improving access to affordable products. However, the design of these regulations may interact with firm strategic entry and exit decisions in ways that mitigate the effects of pricing regulation or eliminate access to certain products entirely. In the US individual health insurance market, the Affordable Care Act established community rating areas made up of groups of counties in which insurers must offer plans at uniform prices, but insurers do not have to enter all counties in a rating area. The exact design of each market has been left to individual states. Allowing partial entry creates trade-offs in rating area design: larger areas may support more competition, but heterogeneous areas may promote partial entry as firms choose to not enter high cost areas. To evaluate these trade-offs, I develop a model of insurer entry and pricing decisions and investigate how insurers respond to rating area design. I find that banning partial entry increases overall entry, average prices, and consumer welfare. I quantify the trade-offs of increasing rating area size and find returns to size concentrated when marginal costs are similar across counties in a rating area. Regulators must balance promoting competition with pooling high and low-cost consumers in rating area design.”

+ + +

+  “As its capital base has grown, the US healthcare sector has become more—rather than less—labor intensive.” New on PW, Adam Gaffney writes on healthcare reform, competition, and the essential difference between adequate service provisions and hospital supply expansion. Link.

+  “A luta por justiça social contra a austeridade determinará o destino do terceiro governo Lula e, talvez, da própria democracia brasileira.” New on PW in Portuguese, Pedro Paulo Zahluth Bastos on Brazil’s budget debate. Link. 

+  “Para México, la transición hacia vehículos sin emisiones significa una oportunidad para recuperar cierto control sobre los recursos naturales que se escaparon de las manos públicas durante los veinticinco años de NAFTA.” Alejandra González Jiménez’s 2022 PW essay on NAFTA, EVs, and Mexico’s auto industry is now available to read in Spanish. Link. Read the original essay in English here. 

+  “Chinese demand for safe US assets (linked to its own undervalued currency) created a scarcity of safe assets which incentivized financial actors in the US and Europe to reach for yield via the US mortgage market.” Brad Setser reviews the Sino-American trade relationship since 2004 and China’s funding of the US trade deficit. Link.

+  “The choice of interventionist forms of industrial policy or market-driven strategies is shaped by the position of the domestic industry in global supply chains, that is, whether global supply chains are emerging or mature and whether the domestic industry is an entrant or incumbent.” By Bentley B. Allan and Jonas Nahm. Link.

+  A forthcoming paper by Ivan Boldyrev explores the work of Soviet mathematicians in optimization, game theory, and probability theory as used in Western economics. Link.

+  “Mining companies no longer feel confident that local populations will accept their operations, which has resulted in a whole cottage industry of consultants on corporate social responsibility, green credentials, and ethical certification schemes.” An interview with Thea Riofrancos. Link. 

+  Jaison R. Abel, Richard Deitz, Jonathan Hastings, and Joelle Scally on the uneven geographic recovery from the pandemic recession. Link.

+  “By the end of the nineteenth century, Denmark, New Zealand and Uruguay enjoyed a virtuous integration into the world economy as small, peripheral, export-oriented countries with natural aptitudes for producing and exporting agricultural goods, mainly from livestock rearing. Despite these similarities, the three countries experienced different trajectories in GDP per capita, the volume of exports, and agricultural productivity until 1970. This article aims to study the dynamics of technological change from a neo-Schumpeterian perspective in the livestock systems of the three countries and their impact on agricultural growth from 1870 to 1970. Land and livestock productivity indices are estimated to measure the performance of each country’s livestock system. Results verify the existence of differences in the growth rates and levels of productivity of land, meat and dairy in the three countries. Diverse agents (government, academia and the productive sector) and their links were fundamental for adapting to a new technological paradigm and for promoting innovation processes related to land improvements in the livestock systems.” By Jorge Alvarez Scanniello and María de las Mercedes Menéndez. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org