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

John Asker | Zendy; Allan CollardWexler | Zendy; Jan De Loecker | Zendy

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

Author(s) -

John Asker,

Allan CollardWexler,

Jan De Loecker

Publication year - 2019

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20171438

Subject(s) - counterfactual thinking , economics , market power , econometrics , welfare , order (exchange) , production (economics) , microeconomics , market economy , philosophy , epistemology , finance , monopoly

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.

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