Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties

Abstract

How does local versus absentee ownership of natural resources?and their associated income?shape the relationship between extraction and local income? Theory and empirics on natural resources and the broader economy have focused heavily on labor markets, largely ignoring the economic implications of payments to resource owners. We study how local ownership of oil and gas rights shapes the local income effects of extraction. For the average U.S. county that experienced an increase in oil and gas production from 2000 to 2013, increased royalty income and its associated economic stimulus accounted for more than two-thirds of the total income effect from extraction in 2013. Looking at gross royalty income in particular, which we derive from more than 2.2 million leases across the continental United States, we estimate that each dollar in royalty income led to $0.52 in non-royalty income, largely reflecting greater wage income in the service sector. {{p}} Overall, a U.S. county with complete local ownership of the subsurface captured 29 cents more of each dollar in production than a county with absentee ownership. For a county with the median shale production in 2013, this would translate to an extra $1,098 per capita, or 5.3 percent of total income.