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The Visible Hand: National Oil Companies, Oil Supply and the Ermergence of the Hotelling Rent

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  • Markus Ludwig

    ()
    (University of Basel)

Abstract

Using firm-level panel data, this paper exposes differences� in the dynamic oil produc- tion regime between private and state-owned firms. I find that state-owned firms reduce the oil supply, ceteris paribus, by 3.5 percent each year, but private firms hold output constant. Furthermore, state-owned firms have not followed� such stringent policy before 1997. My ex- tension of the Hotelling-model attributes the behavior of state-owned firms to a scarcity� rent, whereas private firms produce at their constant capacity limit, owing to possible expropriation. The theory also indicates that state-owned firms will only switch to a Hotelling-regime� after a certain lag time, attributable to limited capacity.� The data further reveals that contractions in the supply of state-owned oil lead to oil price increases, indicating� that state-owned firms do, in fact, generate a scarcity rent. My results therefore suggest that the shift from private towards state-owned oil dominance in the 1970s gave rise to a delayed increasing oil price path.

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Paper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2012/11.

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Handle: RePEc:bsl:wpaper:2012/11

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Related research

Keywords: Hotelling-rent; oil supply; national firms;

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References

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  1. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
  2. Engel, Eduardo & Fischer, Ronald, 2008. "Optimal Resource Extraction Contracts under Threat of Expropriation," Working Papers 34, Yale University, Department of Economics.
  3. John Livernois, 2009. "On the Empirical Significance of the Hotelling Rule," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 22-41, Winter.
  4. Junsoo Lee & John A. List & Mark Strazicich, 2005. "Nonrenewable Resource Prices: Deterministic or Stochastic Trends?," NBER Working Papers 11487, National Bureau of Economic Research, Inc.
  5. John Livernois & Henry Thille & Xianqiang Zhang, 2006. "A test of the Hotelling rule using old-growth timber data," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 163-186, February.
  6. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
  7. Berck, Peter & Roberts, Michael, 1996. "Natural Resource Prices: Will They Ever Turn Up?," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 65-78, July.
  8. Chen, K.C. & Chen, Shaoling & Wu, Lifan, 2009. "Price causal relations between China and the world oil markets," Global Finance Journal, Elsevier, vol. 20(2), pages 107-118.
  9. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
  10. repec:ebl:ecbull:v:3:y:2006:i:14:p:1-12 is not listed on IDEAS
  11. Wolf, Christian, 2009. "Does ownership matter? The performance and efficiency of State Oil vs. Private Oil (1987-2006)," Energy Policy, Elsevier, vol. 37(7), pages 2642-2652, July.
  12. Stacy Eller & Peter Hartley & Kenneth Medlock, 2011. "Empirical evidence on the operational efficiency of National Oil Companies," Empirical Economics, Springer, vol. 40(3), pages 623-643, May.
  13. Lee, Kiseok & Ni, Shawn, 2002. "On the dynamic effects of oil price shocks: a study using industry level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 823-852, May.
  14. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
  15. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September.
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