On the Discrimination Between the Lognormal and the Weibull Distributions With Applications to Offshore Oil/Gas Lease Bids
The competitive sealed bids on an individual offshore oil and gas lease are often assumed to follow a lognormal distribution (Brown, 1969). However, under the lognormality assumption there are known discrepancies between observed and theoretical results. Accordingly, alternative lease bid distributions have been studied. In particular, Dyer (1980) has shown that one would not reject the hypothesis that the bids on certain groups of leases follow Weibull distributions. In this paper, we discuss test procedures for discriminating between a lognormal distribution and a Weibull distribution. The procedure is then applied to the group of 12-, 13-, 14-, 15-, and 16-bid leases. The hypothesis that the bids follow lognormal distributions as opposed to Weibull distributions is overwhelmingly rejected. On the other hand, the hypothesis that the bids follow Weibull distributions as opposed to lognormal distributions is not rejected.