the 1985 86 oil price collapse and afterwards what does game theory add this paper focuses on the strategies used by opec to generate cartel profits over the period 1983 90 the evidence supports the hypothesis that opec adopted a swing producer strategy from 1983 to 1985 but when saudi arabia s profits fell below the level of coumot profits in the summer of 1985 it abandoned the role of swing producer driving prices to the cournot level subsequently saudi arabia appears to have adopted a tit for tat strategy designed to punish excessive cheating by other opec members based on these findings the strengths and limitations of game theory are assessed

causes for an asymmetric relation between the price of crude oil and refined petroleum products we revisit the issue of asymmetries in the relation between the price of crude oil and refined petroleum products in the united states an econometric analysis of monthly data indicates that the asymmetric relation between the price of crude oil and motor gasoline is generated by refinery utilization rates and inventory behavior the asymmetric relation between the price of crude oil and home heating oil probably is generated by contractual arrangements between retailers and consumers together these results imply that price asymmetries may be generated by efficient markets under these conditions there is little justification for policy interventions to reduce or eliminate price asymmetries in motor gasoline and home heating oil markets

the political economy of opec abstract we develop a conceptual model that captures opec pricing behavior and apply it to explain the large gap observed between domestic fuel prices in opec countries and prices in the rest of the world we model opec as a cartel of nations not firms and assume that politicians use two instruments production quotas and domestic fuel consumption subsidies the cartel of nations model suggests that introduction of alternatives to petroleum products may lead opec to reduce exports and increase domestic fuel consumption the empirical analysis suggests that when opec sets production quotas it places similar weights on consumer and producer surplus but when opec countries set domestic fuel subsidies on average 6 more weight is given to consumer surplus with some of the opec countries pursuing very aggressive domestic cheap fuel policies

do oil producers act as oil igopolists in this paper the author analyzes an oligopoly model of exhaustible resource extraction and develop predictions about relative extraction patterns of different producers using the open quote oil close quote igopoly model of loury one can show that producers with large stocks produce a larger amount but a smaller percentage of their stocks than producers with small stocks the authors extend loury s model to cases where extraction costs differ among producers and where costs are a function of cumulative extraction an increase in extraction costs for a producer causes it to produce less relative to its rivals when extraction costs rise with cumulative extraction producers with large reserves tend to have lower extraction costs and a smaller ratio of cumulative production to initial reserves than producers with small reserves the authors test the predictions of the model using oil industry data and find that the empirical results are consistent with the predictions of open quotes oil close quotes igopoly theory producers with larger reserves extract a smaller share of their reserves and have lower production costs than producers with smaller reserves this pattern holds for 73 countries with oil reserves during the time period 1970 1989 and for approximately 400 us oil companies in 1983 and 1984 more the observed pattern of production for both opec and non opec producers is consistent with open quote oil close quote igopoly theory opec producers do not appear to restrain production given their level of reserves relative to non opec producers thus viewing the oil market as containing one dominant firm opec with a competitive fringe may be misleading further the pattern of extraction observed in oil markets is inconsistent with the pattern predicted by competitive theory 29 refs 5 figs 6 tabs less

u s policy toward foreign direct investment foreign investment policy is an increasingly important part of overall foreign policy the authors investigate the substance of u s outgoing foreign direct investment ofdi and incoming foreign direct investment ifdi policy in terms of a small set of policy values and process factors the policy values are domestic prosperity national autonomy and national security the process factors are ideological consonance impact transparency the diffusion and concentration of perceived costs and benefits and the political capacity of groups and institutions these considerations illuminate the relative stability in both areas of policy since world war ii and help to explain the changes that did take place the paper concludes with a forecast that despite the oft heard prediction that economic nationalism is on the increase u s policies toward foreign investment will remain much the same during the eighties as they have been since world war ii

a test of the opec cartel hypothesis 1974 1983 this paper tests whether the higher oil prices fo the last decade could have been the result of producer collusion we find little evidence that opec influenced oil prices during the years of skyrocketing prices 1974 1980 but there is evidence that it did so during the recent years of softening prices 1981 1983

iranian oil free zone and international oil prices abstract one of the main elements of economic sanctions against iran due to its nuclear and military programs is crude oil exportation restrictions in addition to investment in iranian energy related projects senders of such sanction are interested in understanding the impacts of such embargos on international oil prices we apply unrestricted vector autoregressive var model using impulse response functions irf and variance decomposition analysis vda tools with annual data from 1965 to 2012 to analyze the dynamic response of international oil prices to iranian oil export sanction controlling for the supply of non iranian oil the world gdp per capita and post islamic revolution exogenous dummy variables we show that international oil prices respond negatively and statistically significant to increasing shock in absolute negative changes of the iranian oil exports our proxy of iran oil sanctions following the first 2 years after shock the main reason is the positive response of the non iranian oil supply to negative shocks in iranian oil exports filling the missing supply of iranian oil in international markets

crude oil price fluctuations and saudi arabia s behaviour this study attempts to explain why crude oil prices fluctuate the main cause being the quota regime which characterises the opec agreements given that the saudi oil supply is inelastic in the short term a shock in the oil market is accommodated by an immediate price change by contrast a dominant firm behaviour in the long term causes an output change which is accompanied by a smaller price change this explains why oil prices overshoot the results of a general equilibrium model applied to saudi arabia support this analysis they also indicate that saudi arabia does not have any incentive for altering the crude oil market equilibrium with either positive or negative supply shocks as its welfare declines and that it has an incentive disincentive for intervening if a negative positive demand shock hits the crude oil market a second set of simulations is designed to understand what kind of oecd policy might help to bring down prices a tax cut would worsen the situation whereas policies that can increase the price elasticity of demand seem to be very effective

on the identification of cointegrated systems in small samples a modelling strategy with an application to uk wages and prices abstract this paper discusses the practical application of identification in cointegrated systems it will argue that in a common realistic modelling situation of a limited data set and the theory requirements of a fairly rich model the techniques proposed in the existing literature are almost impossible to implement successfully there are crucial decisions to be made over the order in which various restrictions are imposed in the move from a general unrestricted vector error correction model vecm to the fully over identified vecm we will argue that imposing exogeneity restrictions at the earliest possible stage of the model reduction process and then restricting the dynamic adjustment of the model hugely increases the power of tests of overidentifying restrictions on the long run cointegrating vectors in practice this means that a thorough use of economic theory at an early stage rather than treating a model as a pure statistical artefact can yield enormous benefits

fuel efficiency improvements feedback mechanisms and distributional effects in the oil market we study the interactions between fuel efficiency improvements in the transport sector and the oil market where the efficiency improvements are policy induced in certain regions of the world we are especially interested in feedback mechanisms of fuel efficiency such as the rebound effect carbon leakage and the green paradox but also the distributional effects for oil producers an intertemporal numerical model of the international oil market is introduced where opec core producers have market power we find that the rebound effect has a noticeable effect on the transport sector with the magnitude depending on the oil demand elasticity in the benchmark simulations we calculate that almost half of the energy savings may be lost to a direct rebound effect and an additional 10 to oil price adjustments in addition there is substantial intersectoral leakage to other sectors through lower oil prices in the regions that introduce the policy there is a small green paradox effect in the sense that oil consumption increases initially when the fuel efficiency measures are gradually implemented finally international carbon leakage will be significant if policies are not implemented in all regions we estimate leakage rates of 35 or higher when only major consuming regions implement fuel economy policies non opec producers will to a larger degree than opec producers cut back on its oil supply as a response to fuel efficiency policies due to high production costs

on quota violations of opec members abstract over the last decades quota violations have become a norm for opec countries however the academic literature on opec focuses more on its production behavior than on analyzing the quota allocation process or characterizing quota violation patterns this paper offers a theoretical model with empirical evidence to explain opec members incentives for abiding or violating quotas we first offer a cartel model with a quota allocation rule and an endogenous capacity choice the model highlights the trade off between building spare capacity to bargain for a higher legitimate quota versus risking quota violation punishment using the quarterly data from 1995 to 2007 we empirically support the main results and intuitions for the model our empirical evidence is consistent with a theoretical framing in which capacity constraints work as an enforcement mechanism in good times and opec s quota system disciplining its members in bad times

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

u s oil dependence 2014 is energy independence in sight abstract the importance of reducing u s oil dependence may have changed in light of developments in the world oil market over the past two decades since 2005 increased domestic production and decreased oil use have cut u s import dependence in half the direct costs of oil dependence to the u s economy are estimated under four u s energy information administration scenarios to 2040 the key premises of the analysis are that the primary oil market failure is the use of market power by opec and that u s economic vulnerability is a result of the quantity of oil consumed the lack of readily available economical substitutes and the quantity of oil imported monte carlo simulations of future oil market conditions indicate that the costs of u s oil dependence are likely to increase in constant dollars but decrease relative to u s gross domestic product unless oil resources are larger than estimated by the u s energy information administration reducing oil dependence therefore remains a valuable goal for u s energy policy and an important co benefit of mitigating greenhouse gas emissions

opec behavior a test of alternative hypotheses since interpretations of past and future oil price patterns depends on the model chosen the author tests and compares alternative theories of opec as a first step in validating the choice on any one model the results show that among opec countries the partial market sharing cartel model is the only model not rejected by at least some of the 11 members and gives the best explanation of production in comparison with 11 non opec countries the competitive model could not be rejected for 10 of the 11 non opec producers this raises the question of why if opec is a cartel friedman s predictions have not come true and introduces new questions for future research 19 references 3 tables

european economic integration and comparative advantages on the basis of a set of input output tables we computed the european net product possibility frontier nppf for the years from 1995 to 2011 during this period several barriers to trade have been removed allowing higher levels of trade and regional integration subsequently we propose a method to check whether the prediction to be derived from comparative advantages cas theory namely a specialization pattern that allows to reach the nppf is verified the results suggest that cas were not exploited well during the period considered and no positive trend emerged the implication of our results is that there is ample scope for a coordinated policy aimed at improving allocation of resources further research on this topic seems to be necessary

on the economic determinants of oil production theoretical analysis and empirical evidence for small exporting countries abstract in this paper decisions regarding production in oil exporting countries are studied by means of theoretical analysis and empirical investigation in particular we aim at describing the relationship between oil production levels and changes in the world oil demand and prices intertemporal production decisions by a representative oil producer are modeled by means of a partial equilibrium model in this theoretical model oil producers are subject to exogenous shocks in world oil consumption and prices oil companies can change output levels only by incurring a fixed cost results from the simulation of this model show a strong relationship between oil production and changes in world oil consumption on the contrary the effects of changes in real oil prices on oil production decisions seem to be much lower results from the simulation of the theoretical model are then empirically investigated using time series econometric techniques the empirical evidence supports the hypothesis that oil producing countries are characterized by different responses to changes in world oil demand and in real oil prices for many countries production rapidly adjusts to changes in consumption whereas responses of oil production to innovations in real oil prices are found to be not statistically significant in addition when non linearities in the relationship between world oil demand prices and output levels are allowed for evidence of asymmetric effects of shocks to exogenous variables on output levels is found for some countries

heterogeneous noncompliance with opec s oil production cuts abstract in this study we explore the heterogeneous noncompliance behavior among ten member nations of the organization of the petroleum countries opec overall we find that the three top oil producers saudi arabia iran and venezuela and the four relatively low oil producers libya indonesia algeria and qatar exhibit higher cheating frequencies and magnitudes while they tend to offset their peers conduct conversely the three mid oil producers uae nigeria and kuwait display much lower frequencies and magnitudes of noncompliance with opec s administered quotas while they largely demonstrate herding behavior among their peers the volatilities of the respective cheating magnitudes are rather similar across the three clusters though this study contributes to the economic literature by further illuminating the operational mode of opec and by exposing its three main subsets its interdependent structure and its members customary behavioral patterns

oil production responses to price changes an empirical application of the competitive model to opec and non opec countries abstract falling oil prices over the last decade accompanied by over production by some opec members and the growth of non opec supply warrant further empirical investigation of the competitive model to ascertain production behavior a supply function based on a modification of griffin s model is estimated using data from 1973 1997 the sample period unlike griffin s however includes phases of price increase 1970s and price decrease 1980s 1990s thus providing a better framework for examining production behavior using the competitive model the opec results do not support the competitive hypothesis instead a negative and significant price elasticity of supply is obtained this result offers partial support for the target revenue theory for most of the non opec members the estimates support the competitive model opec s loss of market share and the drop in the share of oil based energy should signal adjustments in price and quantity based on a competitive world market for crude oil

oil prices speculation and fundamentals interpreting causal relations among spot and futures prices abstract a consensus that the world oil market is unified begs the question where do innovations in oil prices enter the market here we investigate where changes in the price of crude oil originate and how they spread by examining causal relationships among prices for crude oils from north america europe africa and the middle east on both spot and futures markets results indicate that innovations first appear in spot prices for dubai fateh and spread to other spot and futures prices while other innovations first appear in the far month contract for west texas intermediate and spread to other exchanges and contracts links between spot and futures markets are relatively weak and this may have allowed the long run relationship between spot and future prices to change after september 2004 together these results suggest that market fundamentals initiated a long term increase in oil prices that was exacerbated by speculators who recognized an increase in the probability that oil prices would rise over time

determinants of opec production implications for opec behavior we estimate models that identify the economic and organizational determinants of crude oil production by individual opec nations to clarify the interpretation of econometric results we model production with specifications that resolve the statistical ordering of variables and estimate models with techniques that can cope with stochastic trends in the time series we also analyze the short run dynamics for asymmetries that may carry important insights about opec behavior results indicate that quotas are an important determinant of production and their effects generally are symmetric which implies that opec is an organization that influences production and ultimately prices real prices generally have a positive effect on production and the size of this effect may depend on spare capacity which implies that opec behaviors also embody competitive elements finally all nations other than saudi arabia show some form of production sharing behavior which may imply that opec shares mismatches between the call for opec production and opec quotas

opec and other commodity cartels a comparison abstract the economic literature provides specific characteristics for cartels although the theory of international cartels is not well developed in the literature and every cartel is unique some of these characteristics exist in each cartel this study investigates the existence of these characteristics in six known commodity cartels including opec in addition it compares the oil companies cartel the seven sisters to opec and summarizes the findings of opec econometric models developed in the literature in the last 25 years and concludes that the results do not support cartel or competitive models for opec although other cartels are more successful than opec many books and articles in economics use opec as a cartel example neither statistical tests nor theory support the popular use of opec as a cartel example indeed this article concludes that opec is composed of saudi arabia the dominant world producer plus several distinct sub groups and that separate models are required to explain the behavior of each assigning the power of some opec members to opec has caused confusion about its behavior recent opec success is attributed to political natural and technical capacity limitations in the oil fields that prevented countries from cheating on their quota in other words opec adherence to the quota except for saudi arabia is anything but voluntary

oil consumption subsidy removal in opec and other non oecd countries oil market impacts and welfare effects abstract this paper studies the oil market effects of phasing out oil consumption subsidies in the transport sector welfare effects in different countries are also examined the paper further investigates potential feedback mechanisms of oil subsidy removal via lower oil prices in the global oil market which may stimulate oil consumption in other regions an intertemporal numerical model of the international oil market is applied where opec core producers have market power the major subsidisers of oil are opec countries and the effects of subsidy removal here are quite pronounced consumption of oil in the transport sector of opec countries declines significantly as a result the global oil price falls slightly and other regions increase their oil consumption to some degree although opec consumers are worse off by the subsidy removal total welfare in opec increases due to higher profits from oil production

price cutting and business stealing in imperfect cartels although economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns important puzzles remain standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment but they fail to explain two important factual observations first apparently deliberate cheating actually occurs second it frequently goes unpunished even when it is detected we propose a theory of equilibrium price cutting and business stealing in cartels to bridge this gap between theory and observation

will disruptions in opec oil supply have permanent impact on the global oil market abstract opec has long been a major stakeholder and strong player in the global energy market especially in the petroleum sub sector in recent time however there have been questions over the influence of opec in the sub sector due to changing petroleum production landscape specifically as a result of the discovery of unconventional energy resources in north america and emergence of non opec petroleum producing and exporting countries this development could have significant effect on the global energy market and the macro economy of opec member countries the stationarity or otherwise of opec oil production supply has important implications for determining whether fluctuations in opec market supply has temporary or permanent effect using the zivot andrews structural break stationarity test and production data of opec member countries from 1980 to 2011 this paper investigates whether fluctuations in opec market supply has temporary or permanent effect the empirical analysis shows that for only 5 opec members nigeria saudi arabia ecuador kuwait and uae is the hypothesis of unit root rejected this implies that for the five 5 opec members the effects of shocks to oil production are not permanent and future pattern of oil production can be predicted following past trend the practical implication of this finding is that opec production quota strategy may not have long term impact on the global oil market thus the cartel needs to improve oil production policy coordination among members and ensure strict adherence to production quota while also stressing the need for diversification in member countries