Oil is often considered a "political" good affected by the changes in international political relations. Using a novel dataset on Russian oil-exporting companies over 1999-2011, we find that a worsening in political relations between Russia and an oil-importing country results in a considerable reduction in oil shipments by Russian oil exporting firms into that country, the effect being stronger for state-owned firms. Using leadership changes in oil importing countries as exogenous shocks to political relations, we show that this relationship is causal. However, total exports revenue of Russian oil exporting firms is not affected much, as they seem to be able to recover losses incurred in one market by increasing their sales in other markets. At the same time, the countries importing oil from Russia (especially the ones heavily dependent on Russian oil) see their total oil and energy imports decline (JEL F51, F65, G15, Q34).

This paper studies a regulatory change that significantly increases the prices of residential building renovation. In Hong Kong, where most people live in high-density condominiums, owners’ corporation arranges tender process to choose contractors on behalf of all homeowners when common areas of a building need maintenance and repair. Since 2012, the government has mandated selected buildings to finish such renovations within a year. Using propensity score matching method, we find that homeowners who received statutory notices to repair their building paid 40% more in bid price compared with those who did it voluntarily. After the mandatory scheme was introduced, all homeowners on average paid 40% more, and those who received the notices paid even higher prices. Moreover, these increases in prices are more pronounced in districts where condominiums are more expensive and residents are more educated. Finally, the major contractors’ bids became more correlated after the introduction of the mandatory scheme, suggesting that the scheme may have helped promote bid-rigging and corruption among contractors and owners’ corporations.

Abstract This paper studies the practice of loss-leader pricing strategy in the English Premier League (EPL). While the TV broadcasting revenue for EPL clubs has increased over the past 20 years, the importance of revenue from ticket sales has declined. The theory of multi-product pricing suggests that a change in the relative importance of revenue sources can induce profit-maximizing firms to underprice one product in order to raise the demand for a complementary one. Using other leagues in England and Scotland that do not have as much TV broadcasting revenue as a control group, we find that inferior seats are underpriced among the EPL clubs. Consistent with the growing importance of TV broadcast revenue, we also find that such “loss-leader pricing” is stronger in later years of the sample. Furthermore, we provide evidence that the underpricing of inferior seats is more pronounced in (i) EPL clubs compared to clubs in other European leagues; (ii) elite clubs in EPL compared to non-elite clubs in EPL that have less TV broadcasting revenue; and (iii) clubs promoted to EPL as compared to clubs that are either promoted or relegated to different leagues in England and Scotland. These findings corroborate with the hypothesis that clubs that rely more on TV broadcasting underprice their inferior seats as loss leader to attract more passionate fans.

The published version of this article contained a mistake. The name of the second author was printed incorrectly. The correct name is Kwok Ping Tsang.

We look into the reasons for the significant deceleration of college wage premium growth since 2000 with a planner decision model in which the supply of college workers is endogenously determined. By counterfactual simulations, we find that: (1) the slower skill-biased technological change and faster skill-neutral productivity progress in both routine and manual task occupations account for two-third of the deceleration; (2) the slower skill-biased technological change in cognitive task occupations only explains less than one-tenth of the deceleration prior 2014; (3) the change in cost shifter of college worker supply attributes about a quarter of the deceleration. Furthermore, we show that the decline in college workers’ mean quality is a mechanism with a moderate impact on the deceleration. Our findings suggest that even the overall technological change was becoming more biased in favor of skills, the average college wage premium growth could still slow down. Also, if the demand reversal and automation in non-cognitive task occupations are the necessary directions of technological change, then the deceleration is somewhat an inevitable outcome of technological progress.

It is widely argued that oil exporters could use their natural resources as a weapon to punish adversaries and reward allies. Yet empirical analysis of these claims has been elusive due to lack of data. Using a novel dataset on Russian companies’ oil exports over 1999–2011, we show that a decline in relations between Russia and another country, measured by divergence in their United Nations General Assembly (UNGA) voting patterns, considerably reduces the value of Russian oil exports to that country. The effect is more pronounced for state-owned companies. A deterioration in political relations and associated decrease in oil exports are costly for Russian companies. They experience a decline in profitability following a breakdown in political relations between Russia and those companies’ main export destination countries. Finally, we show that a deterioration in political relations with Russia is costly for the countries importing oil from Russia as their total oil imports decline, suggesting that, at least in the short run, it is costly for these countries to find close substitute for Russian oil. Notably, such adverse effect of political relations on oil importers is pretty recent phenomenon observed over 20002011, which coincide with the rise of Vladimir Putin to power, such patterns are absent in the earlier 1992-1999 period. This draft: Jan 19, 2017 1 Portnykh (Corresponding author: mportnyk@andrew.cmu.edu) Heinz College, Carnegie-Mellon University; Tsui (ktsui@clemson.edu) Clemson University. We would like to thank participants of PERC seminar Bozeman, MT, Applied Micro seminar at Carnegie-Mellon University, Environmental Economics seminar at CMU-Pitt, Environmental Economics seminar at UC Santa Barbara. We also would like to thank Terry Anderson, Dan Benjamin, Dan Berkowitz, Karen Clay, Chris Costello, Robert Crandall, Olivier Deschenes, William Dougan, Arnold Harberger, Brian Kovak, Gary Libecap, Kyle Meng, Tom Mroz, Yadviga Semikolenova, Edson Severnini.

Abstract I examine the sharing economy using a contractual approach pioneered by Cheung (1969, The Theory of Share Tenancy: With Special Application to Asian Agriculture and the First Phase of Taiwan Land Reform. Chicago: Chicago University Press). Progress in information technology that reduces transactions costs leads to the emergence of rental contract to supersede outright ownership, especially among goods and services in which search and monitoring costs had been major trade barriers. I present evidence that ridesharing indeed significantly lowers wait times. Trust cannot explain the economic success of some sharing economy companies (e. g., Airbnb, Uber) but not others (e. g., SnapGoods). Sharing power drill, the poster child of the sharing economy, is an economic failure because the major trade barrier is transportation rather than transaction costs. Changes in transaction costs lead to changes in contractual arrangements. In the case of contractual choice between ridesharing platform and drivers, findings about drivers’ characteristics and contract details are consistent with the theory of share tenancy. My analysis also sheds light on the current debate on the employment status of driver-partners.

A hedonic model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes.Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity.Producers can benefit from price ceilings, at the expense of consumers.Price ceilings can result in quality-degradation "death spirals" that would not occur under quality regulation or excise taxation.The features of tastes and technology that lead to such outcomes are summarized with pairwise comparisons of (not necessarily constant) elasticities.

International politics affects the oil trade. But do financial and commercial traders who participate in spot oil trading also respond to changes in international politics? We construct a firm-level dataset for all U.S. oil-importing companies over 1986–2008 to examine how these firms respond to increases in “political distance” between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. However, the political pattern of oil imports is not entirely driven by the concerns of hold-up risks, which exist when oil transactions via term contracts are associated with backward vertical FDI that is subject to expropriation. In particular, our results indicate that even financial and commercial traders significantly reduce their oil imports from U.S. political enemies. Interestingly, while these traders diversify their oil imports politically immediately after changes in international politics, other oil companies reduce their oil imports with a significant time lag. Our findings suggest that in designing regulations to avoid harmful repercussions on commodity and financial assets, policymakers need to understand the nature of political risk.

International politics affects oil trade. But why? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine what kinds of firms are more responsive to change in “political distance” between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To test this hold-up risk hypothesis, we investigate heterogeneity in responses by matching transaction-level import data with firm-level worldwide reserves. Our results show that long-run oil import decisions are indeed more elastic for firms with oil reserves overseas than those without, although the reverse is true in the short run. We interpret this empirical regularity as that while firms trade in the spot market can adjust their imports immediately, vertically-integrated firms with investment overseas tend to commit to term contracts in the short run even though they are more responsive to changes in international politics in the long run.

We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid-1980s. By exploiting cross-country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long-run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil-rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil-led health improvements are more pronounced in non-democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.

The oil curse refers to the paradox that abundance in oil, arguably the most important natural resource in the past few decades, hinders both economic and political development. Previous cross-country comparisons, however, are plagued with fluctuation in oil prices, and hence are not robust to variations in sample period. A review of the history of the oil industry suggests that for most oil-rich countries oil rents have become an important source of government revenue only after the 1960s when world oil discovery peaked, and then followed by a wave of oil nationalization. The collapse in oil prices in the mid-1980s explains the economic curse of oil first documented in the 1990s. Exploiting variations in the size of initial oil endowments, the timing of oil discoveries, as well as fluctuation in oil prices, recent studies find no evidence that oil wealth hinders economic growth. The evidence for the political curse of oil appears to be more robust. Oil discovery and high oil prices are found to slow down democratic transition, at least over the past few decades. The evidence for the relationship between oil and political violence is mixed. Future research should pay more attention to (a) dissipation in oil rents can take many forms ranging from civil war to increase in repressive capacity, depending on the nature of the cost of repression as well as other transaction costs, such as the cost of negotiating the division of the oil rents; and (b) oil exploration and oil prices are both endogenous to political violence.

This paper examines how international politics affects trade in the absence of empires or wars. We first show that deterioration of relations between the United States and another country, measured by divergence in their United Nations General Assembly voting patterns, reduced U.S. imports from that country during 1962--2000. Though statistically significant, the magnitude of the effect of political distance on trade is small. Indeed, we show that except for petroleum and some chemical products, U.S. imports are not affected by international politics. American firms, however, diversify their oil imports significantly away from political opponents of the United States. Oil trade is often associated with backward vertical foreign direct investment that is subject to the expropriation risk. In contrast to the usual claim that oil is a strategic commodity, we provide suggestive evidence that trade in products when rents are appropriable is more likely to be affected by international politics.

We provide evidence that deterioration of relations between the United States and another country, measured by divergence in their UN General Assembly voting patterns, reduces US imports from that country during the second wave of globalization. Though statistically significant, such an effect of “political distance” on trade is small compared with the frictions imposed by other trade barriers. Indeed, using sector-level trade data, we show that except for petroleum and some chemical products, US imports are not affected by international politics. American firms, however, diversify their import of crude oil significantly away from the political opponents of the US, even after controlling for wars, sanctions, and tariffs. To explain the distinctive political impact on oil import diversification, we test the strategy commodity hypothesis over the hold-up risk hypothesis, because while oil is widely thought to be a strategic commodity, oil trade is also often associated with backward vertical FDI that is subject to the risks of hold-up and expropriation. Our results suggest both political and economic forces are at work. First, although the political limits on oil import are only significant when American firms import oil from dictators, the effect is even more pronounced when the exporting countries have high expropriation risk. Second, a similar import pattern is observed only for other major powers or countries with oil companies operating overseas. Finally, we show that while the US imports of a few strategic commodities, such as tin, are also discouraged by political distance, a similar political effect is also observed in the import of R&D intensive goods, in which case quasi-rents derived from backward FDI in R&D may be expropriated by a hostile government.

More than seventy percent of China’s outward direct investment (ODI), according to the Ministry of Commerce statistics, is invested in Hong Kong, the British Virgin Islands, and the Cayman Islands. Using a unique micro-level dataset collected by the Heritage Foundation that documents individual ODI transactions, we first show that the official statistics and the Heritage Foundation measure of China’s ODI are correlated only in the sample of non-haven economies, because the official statistics treat tax havens as final destinations rather than transit points. On average, a dollar increase in the Heritage Foundation measure of ODI is associated with less than a fifteen cent increase in the official ODI among the non-haven economies, and the downward bias is even larger for investment in energy. We also document that the sharp increase in the official ODI to Hong Kong coincides with the rise in the Heritage Foundation measure of ODI to OECD countries since 2007. Finally, we show that some of the well-documented stylized facts about the pattern of China’s ODI are artifacts of the mismeasurement of the official data. For instance, contrary to previous findings, we find no evidence that China’s ODI is attracted to host countries with poor governance, and that neither cultural proximity nor geographical distance is a major determinant of China’s ODI. Furthermore, the Heritage Foundation data suggest that the resource seeking motive of China’s ODI is at least as strong as the market seeking motive.

This paper exploits variations in the timing and size of oil discoveries to identify the impact of oil wealth on democracy. I use a unique dataset from the Association for the Study of Peak Oil and Gas and other sources describing worldwide oil endowment, exploration, discoveries, and oilfield geology. Using oil discovery as a quasi-experiment, I find that discovering oil decreases a country's 30-year change in democracy, as measured by the Polity Index. On average, discovering 100 billion barrels pushes a country's democracy level almost 20 percentage points below trend. The estimated effect per barrel is larger for oilfields with higher-quality oil and lower exploration and extraction costs. Excluding large Middle East producers from the sample does not affect these results.

Anderson (2006) argues that e-commerce and other new technologies improve efficiency by encouraging the entry of new producers and innovations, creating a "long tail" of niche products while reducing the market share of previously popular products. We study the strategic interaction between hits and niches in their pricing, entry, and innovation decisions using a model of competition under product differentiation and generalized cost structure. In contrast to the popular view, we show that improvements in information and communication technology can lead to either the long tail effect or an opposite "superstar" effect (Rosen, 1981), depending on (a) how the structure (not simply the level) of producer costs changes, and (b) how disparate are consumer preferences. These two factors also determine whether there is excessive or insufficient product diversity. Post-entry product and technology innovation incentives may be inefficient in the long tail market structure because producers can soften price competition by engaging in excessive product differentiation and adopting technologies with high variable costs. These results have implications for various competition-related policies.

The key to energy security, since Churchill’s decision to shift the power source of the British navy’s ships from coal to oil, has been import diversification. Using voting records for the United Nations General Assembly to measure international relations, we examine the effect of international relations on the incentives to diversify oil import sources in a panel data framework over the period 1962-2000. Our presumption is that a divergence in voting patterns reflects misalignment in political interests between pair of states, and hence an increase in “political distance.” Controlling for oil exporters’ endowment and potential supply disruption due to civil conflict, standard gravity controls, as well as exporter and year fixed effects, we find that the United States imports significantly less crude oil from her political opponents. The result is robust to controlling for economic sanctions and militarized interstate disputes, and hence the political oil import diversification is more than a wartime phenomenon. Moreover, the incentives to diversify are stronger when the exporters are nondemocratic. We also provide evidence that changes in political leadership affect international relations, which in turn affect bilateral oil trade. The negative effect of political distance appears to be either weaker or nil for other nonstrategic commodities. Finally, we document a similar oil import pattern in other major powers, such as China, but not in other oil importing countries.