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Fall 2012
ISSN 0890-913X
Volume 28, Number 1

Timing “Externalities” Imposed by Mineral Ownership Law: Coasean Versus Lockean Remedies

John Brätland, U.S. Department of the Interior
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TheJournalofPrivateEnterprise28(1),2012,6177TimingExternalitiesImposedbyMineralOwnershipLaw:CoaseanVersusLockeanRemediesJohnBrätlandU.S.DepartmentoftheInteriorAbstractFragmentedandincompatiblepropertyinterestsofland-ownershiplawimposeexternalitiesinwhichsurface-royaltyownerscanprecludetimingadaptationsinthemanagementofmineralresourcessuchaspetroleum.Thisexternalitytakestheformofamisallocationovertimebecausethecapitaldecisionsrequiredforeconomicconservationareforeclosedtoextractiveenterprises.Resourcesarenotmanagedinasociallybeneficialway.CanextractiveenterprisesviablyinitiateCoaseanbargainswithsurfaceownerstoobtainrequisiterightstoefficientlyallocateresourcesovertime?Thepaperconcludesthatabasisforbargainingbetweensurfaceownersandextractiveenterprisesdoesnotexist.However,aneconomic(andjust)solutionisfoundinneo-Lockeanoriginalappropriationinwhichthefirsttodiscoveranddevelopresourcesacquireequitableandsecureownership.JELCodes:D02,D23,K11,L72,Q32Keywords:Economicwaste;Economicconservation;Coaseanbargains;Extractiveenterprise;Surfaceowner;Originalappropriation;Impliedcovenants;Petroleum;RoyaltyestateI.IntroductionInaneconomicsense,amineralresourcesuchaspetroleumisconservedbytheresourceownerseffortstomaximizethecapitalizedvalueoftheresource.Thesedecisionsrequirejudgmentregardingprospectivemarketuncertaintyandtheflexibilitynecessarytoadapttochangingmarketconditions.Inotherwords,economicconservationrequiresadaptivemanagerialdecisionsinthetimingandscaleofexploration,development,andproductionandthepropertyrightsnecessarytodoso.Buttheinstitutionsofland-ownershiplawforeclosethisadaptationandhenceimposeatimingexternality.ThisforeclosureofadaptationisWilliamBlackstonesjuristiclegacydeclaringthatsurfaceownersalsoownallthatisbelowandwithin61
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