Joint Ventures and Offshore Oil Lease Sales

Alternative explanations of joint bidding for offshore oil tract leases are examined. The models suggest that firms undertake joint bids: 1) to reduce risk by spreading ownership across tracts; 2) to share technical expertise including information; and 3) to ameliorate financial constraints. These hypotheses are examined empirically using the multiple logit technique and other tests with data constructed from the Baltimore‐Canyon sale of 1976. The results suggest that firms' behaviors are consistent with the explanations of diversification and sharing of expertise; explanations based on financial constraints are shown to be consistent with the data in the risk‐averse case but not in the risk‐neutral case. Implications of these results for research and policy are discussed.