Informational Asymmetry, Bidding Strategies, and the Marketing of Offshore Petroleum Leases

Abstract

A game-theory model of bidding behavior in offshore oil-lease sales is developed for the case in which one bidder has superior information concerning the value of the tracts being leased. Some implications for government policy are discussed. The system of sale to the highest bidder in sealed bidding at a price equal to the amount bid is found to be nonoptimal. Adverse selection is related to other cases of informational asymmetry. A reason is advanced for the scarcity of markets in state claims.