Matthew Kahn has a great post on the big NYT natural gas story:
Asymmetric information and fundamental uncertainty raise interesting issues in economics. Suppose that a natural gas company owns 10 plots of adjacent land and reports the “provable” quantity of natural gas that it can access at one of the plots. It is tempting to multiply this by 10 as optimists extrapolate that all of the plots are of equal quality. But, how do you know if the company is “cherry picking” and simply reporting the truth about its best plot (and hoping you will extrapolate) or is simply lying even about that plot? Do the executives of the firm have the right incentives to tell the truth? Their company’s stock price increases with announcements of “new proven reserves”. The NY Times is very concerned about this new case of winner’s curse. New accounting rules make it easier for gas companies to overstate their reserves and the NY Times is playing a useful role in spreading information about this point. Natural gas is the new thing as it offers domestic energy security and lower GHG emissions than fossil fuels. But, how much of this resource do we really have?