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Overreporting Oil Reserves

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  • Philip U. Sauré

Abstract

An increasing number of oil market experts argue that OPEC members substantially overstate their oil reserves. While the economic implications could be dire, the incentives for overreporting remain unclear. This paper analyzes these incentives, showing that oil exporters may overreport to raise expected future supply, thereby discouraging oil-substituting R&D and improving their own future market conditions. In general, however, overreporting is not costless: it must be backed by observable actions and therefore induces losses through supply distortions. Surprisingly, these distortions offset others that arise when suppliers internalize the buyers' motives for R&D. In this case, overreporting is rational, credible, and cheap.

Suggested Citation

  • Philip U. Sauré, 2010. "Overreporting Oil Reserves," Working Papers 2010-07, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2010-07
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2010/working_paper_2010_07
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    References listed on IDEAS

    as
    1. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 941-975.
    2. Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-749, August.
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    Cited by:

    1. Michielsen, Thomas O., 2014. "Strategic resource extraction and substitute development," Resource and Energy Economics, Elsevier, vol. 36(2), pages 455-468.
    2. Karanfil, Fatih & Omgba, Luc Désiré, 2017. "Reconsidering the scarcity factor in the dynamics of oil markets: An empirical investigation of the (mis)measurement of oil reserves," Energy, Elsevier, vol. 137(C), pages 209-218.

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    More about this item

    Keywords

    Exhaustible Resource; Substitution Technology; Signaling;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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