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Category — Offshore Privatization

Subsoil Privatization: The Ultimate Post-BP Spill Reform

Editor Note: This post complements a previous entry at MasterResource by Guillermo Yeatts,
Subsoil Oil and Gas Privatization: Private Wealth for the Common Good.]

Government intervention in free markets is prefaced on market failure. But no such rationale explains why federal and state governments have owned and managed hydrocarbon-bearing onshore and offshore lands. Government involvement can be explained by little more than the historical precedent of sovereign ownership of unowned property and of habit.

In a private property world, surface and subsurface areas would be unowned until the positive acts of discovery and intent to use. Under the “homestead” theory of first property title, the state of nature (unowned area) would not be the property of government but the first resource entrepreneur who, in the immortal words of John Locke, “tills, plants, improves, cultivates and can use the product of” the surface or subsurface to “enclose it from the common.”

Sovereign ownership would be displaced by a rational ownership system within the private sector, and individual accountability and economic incentives would reign over the inherent land-use conflicts on behalf of “all of the people.” The privatization process can follow many forms–such as a Cato Policy Analysis by Terry Anderson, Vernon Smith, and Emily Simmons, “How and Why to Privatize Federal Lands,” espousing a 20–40 year transfer. But other things equal, the sooner the transfer the better, so long as meeting the basic criteria as outlined by Anderson et al.: 

  • Allocation to the Highest-Valued Use
  • Low Transactions Costs
  • Broad Participation in Divestiture Proceedings
  • Recognition of Squatters’ Rights

As it is now, government ownership of a resource transforms authorities into central economic planners to answer the questions of who does what, when, where, and how much. Such is the position of the Department of the Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement (formerly the Minerals Management Service) in regard to offshore leasing and publicly owned onshore development.

If all subsoil rights had been socialized in the United States, a severe economic calculation problem would have existed for the Department of Interior. But a coexisting (and much larger) private lease market, at least on dry lands, has provided crucial information that Interior over many decades has used to make decisions.

Nonetheless, political control over swaths of mineral-bearing subsoil for over a century has led to administrative problems at Interior such as: [Read more →]

September 17, 2010   2 Comments