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Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program

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Chang-Tai Hsieh
Enrico Moretti

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Abstract

From 1997 through 2003, the UN Oil for Food Program allowed Iraq to export oil for humanitarian supplies. We hypothesize that Iraq deliberately set the price of its oil below market prices to solicit bribes from oil buyers. By comparing the price gap between Iraqi oil and its close substitutes during the Program to the gap prior to the Program, we find evidence of significant underpricing. Our central estimate suggests that Iraq collected $1.3 billion in bribes from underpricing its oil, or 2 percent of oil revenues. Underpricing is higher during periods of high volatility in oil markets-when detection is more difficult-but declines after the UN limited Iraq's ability to set the price of its oil. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 121 (2006)
Issue (Month): 4 (November)
Pages: 1211-1248
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Handle: RePEc:tpr:qjecon:v:121:y:2006:i:4:p:1211-1248

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  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Mark Duggan & Steven D. Levitt, 2002. "Winning Isn't Everything: Corruption in Sumo Wrestling," American Economic Review, American Economic Association, vol. 92(5), pages 1594-1605, December. [Downloadable!] (restricted)
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  3. Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher Cheating," NBER Working Papers 9413, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Raymond Fisman & Shang-Jin Wei, 2001. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," NBER Working Papers 8551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Rafael La Porta & Florencio López-de-Silanes & Guillermo Zamarripa, 2003. "Related Lending," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 231-268, February. [Downloadable!] (restricted)
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  6. Abhijit Banerjee & Dilip Mookherjee & Kaivan Munshi & Debraj Ray, 2001. "Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 138-190, February. [Downloadable!] (restricted)
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  1. Benjamin A. Olken, 2005. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," NBER Working Papers 11753, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Stefano DellaVigna & Eliana La Ferrara, 2007. "Detecting Illegal Arms Trade," NBER Working Papers 13355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Olken, Benjamin, 2007. "Corruption Perceptions vs. Corruption Reality," CEPR Discussion Papers 6272, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Barron, Patrick & Olken, Benjamin, 2007. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," CEPR Discussion Papers 6332, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. David Card & Enrico Moretti, 2005. "Does Voting Technology Affect Election Outcomes? Touch-screen Voting and the 2004 Presidential Election," NBER Working Papers 11309, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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