Fiscal federalism in a model of nonrenewable resource (Wyoming)

This dissertation examines the extent to which firms in the oil and gas industry adjust the timing of their activities in the face of changes in (1) tax structure and (2) environmental and land use regulation. The state of Wyoming is highlighted because taxation and environmental (land use) regulation pertaining to extractive industries are long-standing public policy issues that recently have come to the forefront as the state faces severe fiscal problems. The framework embeds econometric estimates into Pindyck's (1978) widely cited dynamic model of exhaustible resource supply. The model is estimated using published data on drilling, production, reserves, and costs from industry sources including the American Petroleum Institute and from government sources including the U.S. Department of Energy. A key feature of the model is that it accounts for interactions between taxes and tax incentives levied or offered by federal, state, or local governments. Output of oil and gas is shown to respond grudgingly to changes in production taxes and production tax incentives.; An important second part of the analysis is a cost function for oil and gas drilling estimated using data from the Wyoming Checkerboard. The Checkerboard is a center of U.S. oil and gas activity in which square-mile sections of property still alternate between federal and private ownership as originally established by the Pacific Railway Acts of 1862 and 1864. This unusual land ownership pattern naturally controls for sources of unobserved differences in drilling cost on federal and private land and allows the cost premium of about {dollar}111,000 per well on federal property to be associated with more stringent application of environmental and land use regulations. Also, a simulation model of nonrenewable resource extraction is used to estimate losses of oil and gas output over the next 60 years because of tougher regulations on federal property. These losses are interpreted as lower-bound estimates of the opportunity cost associated with more stringent protection of cultural and biological resources on surface land.