(Mis)Allocation, Market Power, and Global Oil Extraction

Asker, John; Collard-Wexler, Allan; Loecker, Jan De

doi:10.1257/aer.20171438

Cited by 77 publications

(25 citation statements)

References 60 publications

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“…See alsoAsker et al (2019), who use micro-data from the oil industry to show much higher amounts of economic waste than the classic Harberger analysis suggested.4 Our results allow for a form of entry relying on individual demand curves with choke-prices. In this…”

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confidence: 77%

Productivity and Misallocation in General Equilibrium

Baqaee

Farhi

2019

The Quarterly Journal of Economics

343

214

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This paper develops a general theory of aggregation in inefficient economies. We provide nonparametric formulas for aggregating microeconomic shocks in economies with distortions such as taxes, markups, frictions to resource reallocation, financial frictions, and nominal rigidities. We allow for arbitrary elasticities of substitution, returns to scale, factor mobility, and input-output network linkages. We show how to separately measure changes in technical and allocative efficiency. We also show how to compute the social cost of distortions. We pursue applications focusing on firm-level markups in the United States. We find that improvement in allocative efficiency, due to the reallocation over time of market share to high-markup firms, accounts for about half of aggregate TFP growth over the period 1997–2015. We also find that eliminating the misallocation resulting from the large and dispersed markups estimated in the data would raise aggregate TFP by about 15%, increasing the economy-wide cost of monopoly distortions by two orders of magnitude compared with the famous 0.1% estimate by Harberger (1954). These exact numbers should be interpreted with care because the data are imperfect and require substantial imputation.

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confidence: 77%

Productivity and Misallocation in General Equilibrium

Baqaee

Farhi

2019

The Quarterly Journal of Economics

343

214

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“…Furthermore, they show that 22 percent of this efficiency loss (i.e., 163 billion US$) can be attributed to OPEC's market power. 3 It is interesting to note that while both Asker et al (2019) and our paper point to the importance of the inefficiencies due to OPEC's market power, we get to this conclusion from quite different approaches, an indication of the robustness of our results.…”

Section: Introductionmentioning

confidence: 52%

“…The importance of the inefficient order of use of the different oil reserves is corroborated by the recent findings of Asker et al (2019). While we use a stylized model with two different types of reserves, they use a rich micro-dataset on production costs and reserves of 11,455 oil fields (constituting 99.9 percent of global reserves).…”

Section: Introductionmentioning

confidence: 69%

“…They construct a counterfactual scenario for the period 1970-2100 (when all reserves are assumed depleted) in which these fields are extracted according to the Herfindahl rule, where from 2014 until 2100 it is assumed that oil demand increases at an annual rate of 1.3 percent and actual production satisfies the Herfindahl rule. Asker et al (2019) find that the total costs of production misallocation between oil fields add up to 744 billion US$ (measured at 2014 prices), which equals 30 percent of the present value of actual extraction costs since 1970. Furthermore, they show that 22 percent of this efficiency loss (i.e., 163 billion US$) can be attributed to OPEC's market power.…”

Section: Introductionmentioning

confidence: 97%

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OPEC, unconventional oil and climate change - On the importance of the order of extraction

Benchekroun

Meijden

Withagen

2020

Journal of Environmental Economics and Management

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We show that OPEC's market power contributes to climate change by enabling producers of relatively expensive and dirty oil to start producing before OPEC reserves are depleted. We examine the importance of this extraction sequence effect by calibrating and simulating a cartel-fringe model of the global oil market. While welfare net of climate damage under the cartel-fringe equilibrium can be significantly lower than under a first-best outcome, almost the entire welfare loss is due to the sequence effect of OPEC's market power. In our benchmark calibration, the cost of the sequence effect amounts to 15 trillion US$, which corresponds to 97 percent of the welfare loss. Moreover, we find that an increase in non-OPEC oil reserves decreases global welfare. In a counterfactual world without non-OPEC oil, global welfare would be 13 trillion US$ higher, 10 trillion US$ of which is due to lower climate damages.

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“…Asker et al (2019) also assume constant marginal costs for the oil industry.PUC-Rio -Certificação Digital Nº 1712586/CA…”

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confidence: 99%

Local Content in Brazilian Oil and Gas Auctions

MITTELSTADT¹

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In this paper, we study the case of Brazilian oil and gas auctions to assess the impact of local content requirements in bidding behavior, allowing us to estimate its impact on government revenue. The Brazilian case is particularly appealing, as there were significant changes in these requirements throughout the years. In the sales with increased local content requirements there was a dramatic change in the bidders behavior: the average signing bonus for offshore tracts dropped from an average of R$ 57 million in the first sales to only R$ 10.6 million and the average number of bids per tract plunged from 0.92 to 0.12. We aim to answer how much the increased local content requirements affected participation and revenue in the auctions. We develop and estimate a structural auction model within the mineral rights framework that includes an entry decision and bids in multiple dimensions, including a bonus and a local content percentage. Our results show that local content requirements increase costs in deep water areas in 14%. Government revenue in auctions in these areas could be much larger in a counterfactual with no local content requirements, amounting to an extra R$ 17 billion in signing bonus only for deep-water tracts. For onshore areas, we did not find any significant difference between local and foreign costs.

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(Mis)Allocation, Market Power, and Global Oil Extraction

Cited by 77 publications

References 60 publications

Productivity and Misallocation in General Equilibrium

Productivity and Misallocation in General Equilibrium

OPEC, unconventional oil and climate change - On the importance of the order of extraction

Local Content in Brazilian Oil and Gas Auctions

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