IDEAS home Printed from https://ideas.repec.org/p/icr/wpicer/16-2001.html
   My bibliography  Save this paper

Political constraints on government cartelization: the case of oil production regulation in Texas and Saudi Arabia

Author

Listed:
  • Gary Libecap
  • James L. Smith

Abstract

We examine government cartelization efforts in crude oil production. Texas and Saudi Arabia are alleged to act as swing producers to maintain the interstate (1933-1972) and OPEC (1973 on) oil cartels respectively. We analyze the political constraints that affected the ability of Texas and Saudi Arabia to act as residual producers within their respective cartels. In the case of Texas, political factors molded individual firm production quotas, advantaging high-cost producers and hence, reducing total cartel net profits. Further, Texas had limited range for adjusting total state production to maintain interstate output at levels consistent with target prices. Saudi Arabia’s role as swing producer within OPEC raises similar questions regarding how cartel output is shared among members, and the extent to which domestic economic and political pressures coming from various member countries may undermine the effectiveness of the cartel. OPEC ‘s coordination problem has been more difficult than that faced by the interstate cartel for a variety of reasons that we explore. Even so, they have not kept the OPEC members in general, and Saudi Arabia in particular, from exerting a strong influence on the level of world oil prices.

Suggested Citation

  • Gary Libecap & James L. Smith, 2001. "Political constraints on government cartelization: the case of oil production regulation in Texas and Saudi Arabia," ICER Working Papers 16-2001, ICER - International Centre for Economic Research.
    • Handle: RePEc:icr:wpicer:16-2001
    as

    Download full text from publisher

    File URL: http://www.biblioecon.unito.it/biblioservizi/RePEc/icr/wp2001/Libecap16-01.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alexander, Barbara J., 1997. "Failed Cooperation in Heterogeneous Industries Under the National Recovery Administration," The Journal of Economic History, Cambridge University Press, vol. 57(2), pages 322-344, June.
    2. Wiggins, Steven N & Libecap, Gary D, 1987. "Firm Heterogeneities and Cartelization Efforts in Domestic Crude Oil," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(1), pages 1-25, Spring.
    3. Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
    4. Moran, Theodore H., 1981. "Modeling OPEC behavior: economic and political alternatives," International Organization, Cambridge University Press, vol. 35(2), pages 241-272, April.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    6. Libecap, Gary D & Wiggins, Steven N, 1984. "Contractual Responses to the Common Pool: Prorationing of Crude Oil Production," American Economic Review, American Economic Association, vol. 74(1), pages 87-98, March.
    7. Alexander, Barbara & Libecap, Gary D., 2000. "The Effect of Cost Heterogeneity in the Success and Failure of the New Deal's Agricultural and Industrial Programs," Explorations in Economic History, Elsevier, vol. 37(4), pages 370-400, October.
    8. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-963, December.
    9. Gately, Dermot, 1984. "A Ten-Year Retrospective: OPEC and the World Oil Market," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1100-1114, September.
    10. Morris A. Adelman, 1993. "Modelling World Oil Supply," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-32.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Güntner, Jochen H.F., 2014. "How do oil producers respond to oil demand shocks?," Energy Economics, Elsevier, vol. 44(C), pages 1-13.
    2. Steven Hackett & Dean Dudley & James Walker, 1994. "5. Heterogeneities, Information and Conflict Resolution: Experimental Evidence on Sharing Contracts," Journal of Theoretical Politics, , vol. 6(4), pages 495-525, October.
    3. Bandyopadhyay, Kaushik Ranjan, 2009. "Does OPEC act as a Residual Producer?," MPRA Paper 25841, University Library of Munich, Germany, revised 2010.
    4. Mileva, Elitza & Siegfried, Nikolaus, 2012. "Oil market structure, network effects and the choice of currency for oil invoicing," Energy Policy, Elsevier, vol. 44(C), pages 385-394.
    5. Andrade de Sá, Saraly & Daubanes, Julien, 2016. "Limit pricing and the (in)effectiveness of the carbon tax," Journal of Public Economics, Elsevier, vol. 139(C), pages 28-39.
    6. Ayoub, Antoine, 1994. "Le pétrole : économie et politique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 70(4), pages 499-520, décembre.
    7. Gary D. Libecap, 1990. "Comments on Elinor Ostrom," Rationality and Society, , vol. 2(1), pages 112-116, January.
    8. Ronald W. Cotterill, 1998. "Estimation of Cost Pass Through to Michigan Consumers in the ADM Price Fixing Case," Food Marketing Policy Center Research Reports 039, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    9. Garrod, Luke & Olczak, Matthew, 2018. "Explicit vs tacit collusion: The effects of firm numbers and asymmetries," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 1-25.
    10. Berg, Elin & Kverndokk, Snorre & Rosendahl, Knut Einar, 1998. "Gains from cartelisation in the oil market," Energy Policy, Elsevier, vol. 26(9), pages 725-727, August.
    11. Alkhathlan, Khalid & Gately, Dermot & Javid, Muhammad, 2014. "Analysis of Saudi Arabia's behavior within OPEC and the world oil market," Energy Policy, Elsevier, vol. 64(C), pages 209-225.
    12. Ostrom, Elinor, 2006. "The value-added of laboratory experiments for the study of institutions and common-pool resources," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 149-163, October.
    13. Bharati, Rakesh & Crain, Susan J. & Kaminski, Vincent, 2012. "Clustering in crude oil prices and the target pricing zone hypothesis," Energy Economics, Elsevier, vol. 34(4), pages 1115-1123.
    14. Chicu, Mark & Vickers, Chris & Ziebarth, Nicolas L., 2013. "Cementing the case for collusion under the National Recovery Administration," Explorations in Economic History, Elsevier, vol. 50(4), pages 487-507.
    15. Yousefi, Ayoub & Wirjanto, Tony S., 2004. "The empirical role of the exchange rate on the crude-oil price formation," Energy Economics, Elsevier, vol. 26(5), pages 783-799, September.
    16. De Santis, Roberto A., 2003. "Crude oil price fluctuations and Saudi Arabia's behaviour," Energy Economics, Elsevier, vol. 25(2), pages 155-173, March.
    17. Hochman, Gal & Zilberman, David, 2015. "The political economy of OPEC," Energy Economics, Elsevier, vol. 48(C), pages 203-216.
    18. Alexander, Barbara & Libecap, Gary D., 2000. "The Effect of Cost Heterogeneity in the Success and Failure of the New Deal's Agricultural and Industrial Programs," Explorations in Economic History, Elsevier, vol. 37(4), pages 370-400, October.
    19. Leighty, Wayne & Lin, C.-Y. Cynthia, 2012. "Tax policy can change the production path: A model of optimal oil extraction in Alaska," Energy Policy, Elsevier, vol. 41(C), pages 759-774.
    20. Hassan Ghassan & Prashanta Banerjee, 2015. "A threshold cointegration analysis of asymmetric adjustment of OPEC and non-OPEC monthly crude oil prices," Empirical Economics, Springer, vol. 49(1), pages 305-323, August.

    More about this item

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • N4 - Economic History - - Government, War, Law, International Relations, and Regulation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:icr:wpicer:16-2001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniele Pennesi (email available below). General contact details of provider: https://edirc.repec.org/data/icerrit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.