| This dissertation presents a collection of essays addressing four issues. The first essay (Chapter II) examines the "external" sources of the incentive to cheat in OPEC in a strategic set-up. Also examined is the role of Saudi Arabia in enforcing cartel policies. Specifically, it is tested whether OPEC members play a tit-for-tat strategy. The results indicate evidence of this strategy being played by only a few members--Iraq, Kuwait, UAE, and Nigeria. There is further evidence that Saudi Arabia's production behavior affects several OPEC members in terms of their decision to obey or disobey production quotas.;Chapter III uses data on domestic economic variables to test to what extent differing economic conditions influence individual OPEC members' quota violations. Differing economic conditions would suggest different implicit discount rates used by OPEC members to evaluate the potential benefits of abiding by the cartel. Results suggest that the economic variables chosen are inadequate proxies for the unobserved discount rates.;Chapter IV empirically examines two models in order to explain why the spot price differential between the light and heavy crude oils fluctuates widely over time, although the quality differential between them remains constant. Model I predicts that the crude price differential will be determined by the relative price of light and heavy petroleum products, as well as refining capacity utilization. Model II suggests that the crude price differential depends on the oil supply shocks produced by OPEC. Empirical tests accept model I and reject model II.;The final chapter focuses on the issue of why petroleum products' prices rise faster but decrease at a slower rate when the crude oil price rises and falls, respectively. Using monthly data on crude oil and petroleum products prices, I test for the existence of a long run relationship between these two prices as well as for the existence of an asymmetric response. Results indicate that, indeed, petroleum products' prices respond asymmetrically to crude oil price changes. |
