The first two chapters focus on the topic: how efficiently do markets reallocate capital in booms and busts, and what are the effects of policies designed to smooth out fluctuations? I exploit a novel dataset of contracts and projects in the offshore oil and gas industry to examine the role of matching in shaping industry reallocation. Oil and gas companies undertake projects (wells) but do not own capital (drilling rigs), and so must search for capital in a decentralized market. The quality of the match matters: more efficient rigs are suited to drilling more complex projects. Moreover, search frictions arise due to the idiosyncratic nature of the projects. I find that booms - caused by increases in oil and gas prices - are associated with a sorting effect: booms increase the option value of searching for a better match which leads agents to avoid bad matches. This results in stronger sorting patterns in booms than busts, and less mismatch. I provide an identification strategy to disentangle changes in the composition of searching projects (demand) from the sorting effect. The strategy relies on inverting observed matches through a flexible search technology and acceptance sets to identify the composition of searching projects. I estimate a structural model of the industry that tractably incorporates rich dynamics in the distributions of searching agents. Comparing a model where agents are not selective in matching to the market benchmark, I find that the sorting effect increases welfare (measured in total profits) by 11.4%. Yet, frictionless matching would further increase welfare by 28.6%. Demand smoothing policies such as countercyclical tax credits - which are common in the industry - lead only to small increases in welfare. The motivation for the third chapter is that regulation is often specific to a particular region or country. When the stringency of regulation differs between places this may cause capital to relocate to a region with weaker regulation. I investigate how proposed environmental policies distort the relocation decisions of drilling rigs by estimating a model using contract and location data in the global deepwater drilling market. The model extends the spatial search literature to account for not just how much capital will leave after changes in regulation but also what kinds of capital will relocate. The main policy finding is that incomplete regulations such as a moratorium on drilling in the US (a demand shift) and changes to environmental standards in the US (a cost shift) induce large changes in the composition of rigs drilling in each location. However, a coordinated agreement on drilling standards would reduce policy distortions.

Creator

• Vreugdenhil, Nicholas

DOI

• https://doi.org/10.21985/n2-e751-f955

Subject

• Economics

Language

• en

Alternate Identifier

• etdadmin_upload_661051
• http://dissertations.umi.com/northwestern:14596

Keyword

• Industrial Organization
• Oil and Gas
• Energy

Date created

• 2019-01-01

Resource type

• Dissertation

Rights statement

• In Copyright