Offshore Oil Lease Revenue Increases Through Strategic Bid Concealment, Study Finds

Federal ocean oil and gas lease auctions generate significantly higher total government revenue when losing bid amounts remain secret, according to her recent paper, “Information Design in Common Value Auction with Moral Hazard: Application to OCS Leasing Auctions,” published in Econometrica.

Anh Nguyen, Associate Professor of Economics at Carnegie Mellon University’s Tepper School of Business, demonstrates that withholding rival bid information prevents a phenomenon that depresses post-auction exploratory drilling. Under current regulations for U.S. Outer Continental Shelf auctions, the federal government discloses all submitted bids after selecting the winner. Winning bidders then analyze these rival offers to infer hidden energy potential before deciding whether to undertake costly exploratory drilling.

"In many common value auction settings, the winning bidder has to make investment decisions that depend on the expected value of the auctioned object," Nguyen writes. "Lower losing bids can act as a discouraging signal for further exploratory drilling."

Analyzing federal lease auctions conducted from 2000 to 2019, the research establishes that a 1 percent increase in the average losing bid raises the probability of exploratory drilling by 0.035 percentage points. Because royalty payments on extracted oil and gas account for roughly 85 percent of total government auction revenue, discouraging signals from low rival bids lead directly to unfulfilled leases and substantial treasury losses. During the study period, energy companies explored only 24.5 percent of leased tracts.

Counterfactual models in the study show that adopting a complete nondisclosure policy reduces winning bids slightly—by 1.13 percent for shallow tracts and 4.23 percent for deepwater tracts—as bidders adjust for reduced post-auction information. However, the strategic pooling of bid data increases post-auction exploration rates by 0.4 percentage points on average. This increased drilling expands overall royalty revenue by 1.61 percent on shallow leases and 2.37 percent on deepwater leases, resulting in net financial gains for the federal government.

"By strategically pooling 'bad' information (i.e., low losing bids) with 'good' information (i.e., high losing bids), the auctioneer can increase the expected probability of drilling and hence royalty revenue," Nguyen explains. "The positive impact of a nondisclosure policy on drilling is concentrated in more productive tracts."

The analysis further evaluates partial disclosure policies, such as hiding only the top losing bids or concealing offers above specific dollar thresholds. The findings indicate that complete nondisclosure yields the maximum revenue return for the government across most lease categories while simultaneously improving economic welfare by counteracting drilling distortions caused by fixed royalty taxes.

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Summarized from Nguyen, A. (2026). Information Design in Common Value Auction with Moral Hazard: Application to OCS Leasing Auctions. Econometrica, 94(4), 1171-1208. https://doi.org/10.3982/ECTA21839