Supply flexibility in the shale patch: Facts, no fiction

Abstract

In two recent papers, Kilian and Zhou (2019) and Kilian (2019) have criticized Bjørnland, Nordvik, and Rohrer (2017), arguing that our finding of a large price elasticity of output for shale producers is not credible. We welcome a discussion of our methods and findings, but the criticisms made in these two papers are inaccurate and mischaracterize our analysis and results. In this note I address the criticism that has been made, arguing that our findings support the notion that the degree of output flexibility is dependent on the production technology in question. Furthermore, I argue that knowledge that shale producers are more price elastic than conventional oil producers could have far reaching implications for the industry, for macroeconomic outcomes, and for policy analysis.