182 The Political Economy of Resource Use 



ters, is even less convincing. In order to isolate the conservation 

 issue it is necessary to assume that the present regulatory system is 

 abandoned in favor of unit operation of oil pools brought about 

 either by voluntary action or by compulsion. We must further assume 

 that concentration of ownership of pools is not sufficiently great to 

 produce a monopolistic price policy. Under these assumptions the 

 question is this: Would a competitive pricing of oil, with prices equal 

 to the marginal costs of unified pool operations, be expected to lead 

 to a current rate of production and consumption that would sacrifice 

 future high-priority for present low-priority uses? Would oil be used 

 now for, say, oiling roads, at the risk of high real prices or absolute 

 lack of oil for transport ten or twenty years from now? If so, this 

 would presumably represent a failure of the price system justifying 

 intervention in the interests of conservation. 



It is, of course, difficult to answer so "iffy" a question with assur- 

 ance. But the logic of the situation, I submit, runs entirely against 

 such a presumption. As we have seen, unit operation of oil pools can 

 be expected to eliminate the kind of wastes characterized above as 

 external diseconomies. Furthermore, since a large number of separate 

 owners would no longer have to protect their interests against each 

 other by feverish drilling, the spacing of wells would follow a calcula- 

 tion of the economic relation of inputs to expected output. The criti- 

 cal question would appear to be whether competitive pricing would 

 inevitably lead to persistent production in excess of the most efficient 

 rate of recovery, thus lessening substantially the amount of economi- 

 cally recoverable oil at the expense of high — and avoidable — future 

 prices.-*^ Is the marginal cost of production so far below the average 

 full cost (including the cost of discovery and development) that mar- 

 ginal-cost-pricing inevitably means sales at less than the cost of re- 

 placement? Before concluding that it does, it is well to recognize that 

 marginal costs of operation rise very rapidly in the neighborhood of 

 M.E.R. since production in excess of that rate means a loss of re- 

 coverable oil to be charged against current operations. If future 



-^The most efficient rate of recovery (M.E.R.) means a rate that, by sus- 

 taining gas pressures, assures the maximum recovery from the pool. (The 

 maximum is obviously an economic rather than a technical limit.) 



