Investment and Taxation: the Case of Oil and Gas in the Permian Basin (Job Market Paper).

Abstract. This paper evaluates the sensitivity of investment and production for the upstream oil industry in the Permian Basin to taxes. I set up a model of auctions for land leases followed by well drilling by the lease holder. Leveraging the strategic decisions of agents about the timing of drilling, the model allows me to evaluate the distortionary effects from revenue taxes for the industry even in absence of variation in taxes. I estimate the model on data from the state of New Mexico and use it to show how alternative policies can affect oil production and state revenues.

Tax Advantages and Imperfect Competition in Auctions for Municipal Bonds (with Daniel Garrett, James Roberts, and Juan Carlos Suárez Serrato), R&R, The Review of Economic Studies.

Abstract. We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show this interaction can limit the ability of bidders to extract information rents and is a crucial determinant of state and local governments’ borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp. lowers mean borrowing costs by 9-10%, consistent with a greater-than-unity passthrough elasticity. We estimate a structural auction model to measure markups, and to illustrate and quantify how the interaction between tax policy and bidder strategic behavior leads to large passthrough elasticities. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. We find that the resulting increase in municipal borrowing costs is 2.8 times as large as the tax savings induced by these policies.

Bidding and Drilling Under Uncertainty: An Empirical Analysis of Contingent Payment Auctions (with Vivek Bhattacharya and James Roberts), R&R, Journal of Political Economy.

Abstract. Auctions are often used to sell assets whose future cash flows require the winner to make post-auction investments. When a winner’s payment is contingent on the asset’s cash flows, auction design can influence both bidding and incentives to exert effort after the auction. This paper proposes a model of contingent payment auctions that explicitly links auction design to post-auction economic activity, in the context of Permian Basin oil auctions. The estimated model is used to demonstrate that auction design can materially impact both revenue and post-auction drilling activity, as well as mitigate or amplify the effects of oil price shocks.