A Model for the Distribution of the Number of Bids on Federal Offshore Oil Leases

Abstract

Not all Outer Continental Shelf (OCS) federal oil leases receive the same number of bids. Indeed, while some leases receive over a dozen bids, many others receive no bids at all. This leads to uncertainty in the number of bids a lease will receive—uncertainty of potential concern to both bidders and bid takers. We develop a model that suggest there are three fundamentally different types of leases—those with “no,” “low,” and “high” competition. This provides a basis for bidders and bid takers to explicitly account for some of the differences among leases when preparing bids and when evaluating the bidding. Although we specifically study only OCS federal oil leases, our overall approach and insights should apply equally well to many other situations with uncertain numbers of bids, including mineral leasing in general, as well as military procurement and construction contracting.