TY  - JOUR
AU  - Kellogg,Ryan
TI  - Learning by Drilling: Inter-Firm Learning and Relationship Persistence in the Texas Oilpatch
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15060
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15060
L1  - http://www.nber.org/papers/w15060.pdf
N1  - Author contact info:
Ryan Kellogg
Department of Economics
University of Michigan
238 Lorch Hall
611 Tappan Street
Ann Arbor, MI 48109-1220
Tel: 734/764-2371
Fax: 734/764-2769
E-Mail: kelloggr@umich.edu
AB  - This paper examines the importance of learning-by-doing that is specific not just to individual firms, but to pairs of firms working together in a contracting relationship. Using new, detailed data from the oil and gas industry, I find that the joint productivity of an oil production company and its drilling contractor is enhanced significantly as they accumulate experience working together. This learning is relationship-specific: drilling rigs generally cannot fully appropriate the productivity gains acquired through experience with one production company to their work for another. This result is robust to other ex ante match specificities.

Relationship-specific learning is consequential because it implies that relationship stability is important to productivity. When two firms accumulate experience working together, relationship-specific intellectual capital is created that cannot be appropriated to pairings with other firms. If the relationship is broken, this capital is destroyed and productivity decreases, thereby giving firms an incentive to maintain long-term relationships. Accordingly, the data indicate that production companies prefer to work with drilling rigs which they have accumulated considerable experience rather than those with which they have worked relatively little. I demonstrate that this contracting pattern is difficult to explain with switching costs or ex ante match specificities alone.
ER  -