INFLEXIBILITY IN THE DEVELOPMENT OF NORTH-SEA-OIL

Collingridge has predicted that technologies with high capital intensi ty, large unit size, long lead time, and high infrastructural requirem ents will be inflexible, difficult to develop, and prone to very serio us error. Early North Sea oil fields exhibited all these characteristi cs and were subject to major development delays and cost overruns. Dev elopers were protected from the adverse consequences of these by the f act that the peak output of most early fields coincided with the very high oil prices of the late 1970s and early 1980s. This was not, and c ould not have been, forecast at the time of development and was theref ore fortuitous. Net present value calculations demonstrate that many f ields would have produced suboptimal returns if the scenarios consider ed likely at the time of development had materialized. Collingridge an d James have also argued that inflexible technologies are associated w ith centralized decision making, concentrated expertise, and a strong supraorganizational sense of mission and that their interaction create s a systemic bias against smaller-scale, more modular technical altern atives. This too has been true of North Sea development, which was his torically dominated by a few large multinational oil companies. The in dependents, who are associated with more flexible technical solutions, have had until recently only a marginal role. The authors conclude th at a more sophisticated understanding of physical and organizational i nflexibility is essential for good policy design and has implications for the general debate about the relative efficacy of governments and markets in the area of technology.