Working Papers Home


2014 Working Papers
2013 Working Papers
2012 Working Papers
2011 Working Papers
2010 Working Papers
2009 Working Papers
2008 Working Papers
2007 Working Papers
2006 Working Papers
2005 Working Papers
2004 Working Papers
2003 Working Papers
2002 Working Papers
2001 Working Papers
2000 Working Papers


Search All Papers


JEL Classification


Past Working Papers (Prior to 2000)


Office of Research
Home Page



Information on
Submitting a Paper



 
 
"Resource-Based and Property Rights Perspectives on Value Creation: The Case of Oil Field Unitization"

Jongwook Kim and Joseph T. Mahoney

 

First Author :

Jongwook Kim
Management
Western Washington University

jongwook.kim@wwu.edu


Second Author :

Joseph T. Mahoney
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

josephm@uiuc.edu

http://www.business.uiuc.edu/faculty/mahoney.html

 
 
Abstract :
 
Why is property rights theory important for strategic management? Strategic management focuses on why certain business firms persistently outperform others. Property rights theory addresses this key question by analyzing market frictions. Resource-based theory, a mainstream theoretical perspective in the discipline of strategic management, implicitly assumes that resources are secure due to the inherent attributes of the resources as well as being effectively protected by third-party enforcement and self-enforcing agreements. Extant property rights theory enables us to relax these assumptions to take into account processes where there are struggles in establishing property rights that will enhance the realized economic value of resources. Determination of value creation, which is emphasized in resource-based theory, is informed by a careful examination of property rights. A case study of oil field unitization (where a single firm is designated as the unit operator to develop the oil reservoir as a whole) is analyzed to illustrate these theoretical points. In particular, widespread failure to achieve oil field unitization in the United States despite large potential aggregate economic gains shows how asymmetric information and distributional conflicts over rental shares can limit adoption of property rights that would enable the “internalization of externalities” and thereby enhance realized value creation. This business case highlights that a full resource-based analysis of value creation that focuses on realized value, and not merely potential value, must incorporate the role of property rights to internalize externalities and to solve game-theoretic prisoners’ dilemma problems of common-pool resources. The case of (the lack of) oil field unitization in the United States illustrates how difficult it can be to get the institutional details of the property rights correct for realized value creation. In an economic world of positive transaction costs, there are frictions in the development of property rights that can drive a persistent wedge between potential value and realized value. In terms of theory development, property rights theory enables us to analyze distributional conflicts and is a complementary and necessary component to resource-based analysis of (realized) value creation.
 
 
Manuscript Received : 2001
Manuscript Published : 2001
 
 
This abstract has been viewed 2732 times.