WORKING PAPERS

  • Covert, Thomas R. and Ryan Kellogg, Crude by Rail, Option Value, and Pipeline Investment, NBER working paper #23855 (revised 2018). Working paper (December, 2018), Original NBER working paper #23855 (2017)

    [abstract]

    The U.S. shale boom has profoundly increased crude oil movements by both pipelines---the traditional mode of transportation---and railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads' flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail's environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80-90% of the displaced oil to flow by rail instead.

  • Kellogg, Ryan, Output and Attribute-Based Carbon Regulation Under Uncertainty, NBER working paper #26172. Working paper (August, 2019)

    [abstract]

    Output-based carbon regulations---such as fuel economy standards and the rate-based standards in the Clean Power Plan---create well-known incentives to inefficiently increase output. Similar distortions are created by attribute-based regulations. This paper demonstrates that, despite these distortions, output and attribute-based standards can always yield greater expected welfare than ``flat'' emission standards given uncertainty in demand for output (or attributes), assuming locally constant marginal damages. For fuel economy standards, the welfare-maximizing amount of attribute or mileage-basing is likely small relative to current policy. For the electricity sector, however, an intensity standard may yield greater expected welfare than a flat standard.

  • Herrnstadt, Evan, Ryan Kellogg, and Eric Lewis, Royalties and Deadlines in Oil and Gas Leasing: Theory and Evidence, Working paper (2019).

    [abstract]

    This paper seeks to estimate the impacts and explain the presence of two pervasive features of oil and gas lease contracts between mineral owners and extraction firms: the royalty and the primary term. The royalty is a percentage of hydrocarbon revenue that is paid to the mineral owner, and the primary term specifies the maximum number of years within which the firm must drill and produce from at least one well, lest it lose the lease. Using detailed data on lease contracts and the timing of drilling, we show empirically that primary term expiration dates have an economically significant impact on firms' drilling decisions: a large share of wells are drilled just prior to expiration. We then develop a model to explain why primary terms and royalties can help maximize the mineral owner's expected revenue from a lease, despite the distortions they generate. The royalty helps the mineral owner extract some of the information rents of the firm but also delays drilling; the primary term partially mitigates this moral hazard problem by encouraging earlier drilling. We examine how these contracts affect drilling and the payouts to mineral owners and firms in the Haynesville Shale formation of Louisiana.

  • Kellogg, Ryan and James Sallee, Durable Goods Demand and the Rationality of Consumers' Price Expectations: Evidence from Gasoline and Diesel, Work in progress