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The effects of the U.S. price control policies on OPEC: lessons from the past

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  • Kisswani, Khalid/ M.

Abstract

In 1973-1974, the U.S. faced the so-called “Energy Crisis” due to the Arab oil embargo and a quadrupling of world crude oil prices by OPEC. This led the U.S. to use a” Price Control” policy in the domestic energy market. The effects of such policy are explored and well documented. However, the responses of OPEC producers to such a policy need further attention. This paper examines the effects of these price controls on OPEC‟s extraction path. It also examines the relation between the harm function and the change in OPEC production. The results show some evidence that OPEC did respond differently to price controls applied by the U.S. For some periods it cut production, while in other periods production levels increased. The results also show some evidence regarding Wirl (2008) that OPEC includes political support as part of its objective function when it comes to oil extraction.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34624.

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Date of creation: 09 Nov 2011
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Handle: RePEc:pra:mprapa:34624

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Keywords: OPEC; Price Controls; Energy Economics; Oil;

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  1. Wirl, Franz, 2008. "Why do oil prices jump (or fall)?," Energy Policy, Elsevier, Elsevier, vol. 36(3), pages 1029-1043, March.
  2. Smith, Rodney T & Phelps, Charles E, 1978. "The Subtle Impact of Price Controls on Domestic Oil Production," American Economic Review, American Economic Association, American Economic Association, vol. 68(2), pages 428-33, May.
  3. Frech, H E, III & Lee, William C, 1987. "The Welfare Cost of Rationing-by-Queuing across Markets: Theory and Estimates from the U.S. Gasoline Crises," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(1), pages 97-108, February.
  4. Karp, Larry & Newbery, David M, 1991. "OPEC and the U.S. Oil Import Tariff," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(405), pages 303-13, March.
  5. Agarwal, Vinod B. & Deacon, Robert T., 1985. "Price controls, price dispersion and the supply of refined petroleum products," Energy Economics, Elsevier, Elsevier, vol. 7(4), pages 210-219, October.
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