OPEC VS USA

Can it be that many of the let us say - "not so democratic" nations of OPEC actually are more efficient in exploiting oil resources than the United States? Contract theory is certainly pointing that way. Libecap and Wiggings paper on common pool contracting implies that the more landowners that are supposed to share an oil resource, the less efficient does the actual exploiting process become since smaller landowners have incentives to exploit at a suboptimal output level. You see the faster you try to get the oil into barrels, the more goes lost since the resource disappears and becomes unexploitable if you raise output above a certain level. Therefore when Sheik X is to exploit a new oil resource he actually has the advantage of being alone. There are no transaction costs due to negotiation or alike and there will most likely be an optimal output level (that exploits the resource at such a pace so a maximal amount can be exploited).

It is kind of ironic that this is the case. Obviously you ask why won’t all landowners just agree on output levels and produce accordingly. Well it seems that this is just theory. In practice you see overproduction and greediness that actually makes total output suboptimal in several cases, especially when you have a large amount of landowners sharing one resource. Or why won´t just one owner buy the other owners out of the deal? Well its obviously very hard to determine each landowners exact value since it´s hard to estimate exactly how much oil each owner has under his rule.

Then this might be a legal issue. IT should be harder and cost more to take go over your quota. However that quota is hard to agree on in the first place. It is the dilemma with democracy I guess.