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  3. American Economic Review
  4. April 2019
  5. (Mis)Allocation, Market Power, and Global Oil Extraction

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

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

  • John Asker
  • Allan Collard-Wexler
  • Jan De Loecker
American Economic Review
vol. 109, no. 4, April 2019
(pp. 1568–1615)
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Abstract

We propose an approach to measuring the misallocation of production in a market that compares actual industry cost curves to undistorted (counterfactual) supply curves. As compared to traditional, TFPR-based, misallocation measures, this approach leverages cost data, such that results are readily mapped to welfare metrics. As an application, we analyze global crude oil extraction and quantify the extent of misallocation therein, together with the proportion attributable to market power. From 1970 to 2014, we find substantial misallocation, in the order of US$744 billion, 14.1 percent to 21.9 percent of which is attributable to market power.

Citation

Asker, John, Allan Collard-Wexler, and Jan De Loecker. 2019. "(Mis)Allocation, Market Power, and Global Oil Extraction." American Economic Review, 109 (4): 1568–1615. DOI: 10.1257/aer.20171438

Additional Materials

JEL Classification

  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • F23 Multinational Firms; International Business
  • L13 Oligopoly and Other Imperfect Markets
  • L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
  • Q35 Hydrocarbon Resources