Do Oil Producers Extract More as They Become Richer? A Natural Experiment Using Unanticipated Reserve Discoveries

19 Pages Posted: 16 Sep 2011 Last revised: 22 Mar 2016

See all articles by Jason J. Lepore

Jason J. Lepore

California State Polytechnic University, San Luis Obispo

Mahdi Rastad

Orfalea College of Business, California State Polytechnic University

Date Written: September 14, 2011

Abstract

The relationship between oil reserves and oil extraction has recently become of interest to the research community. Current empirical literature lacks a clear identification strategy that addresses potential endogeneity problem. This study takes advantage of (arguably) exogenous reserves discoveries to identify the effect of an expansion in reserves on oil production. Contrary to optimal exercise time of an option to wait, the paper finds overall an immediate extraction of new reserves after one year from the time of reserves discovery. Conversely, the OPEC countries prefer to leave the new reserves in the ground for at least 3 to 4 years after the discovery. This may be explained by opposite incentives in place in OPEC vs. fringe countries as a result of differences in their political structure. We provide evidence that is not consistent with an argument that low extraction of OPEC countries is the results of mis-reporting of their reserves sizes.

Keywords: Oil, Extraction, Reserves, OPEC

JEL Classification: Q32, Q34, Q48

Suggested Citation

Lepore, Jason J. and Rastad, Mahdi, Do Oil Producers Extract More as They Become Richer? A Natural Experiment Using Unanticipated Reserve Discoveries (September 14, 2011). Available at SSRN: https://ssrn.com/abstract=1927652 or http://dx.doi.org/10.2139/ssrn.1927652

Jason J. Lepore

California State Polytechnic University, San Luis Obispo ( email )

San Luis Obispo, CA 93407
United States

HOME PAGE: http://www.econ-jasonlepore.com

Mahdi Rastad (Contact Author)

Orfalea College of Business, California State Polytechnic University ( email )

San Luis Obispo, CA 93407
United States

HOME PAGE: http://www.cob.calpoly.edu/faculty/mahdi-rastad/

Register to save articles to
your library

Register

Paper statistics

Downloads
39
Abstract Views
415
PlumX Metrics