Archive forincentives

OPEC to reduce oil production

This article is about OPEC members, acting as a cartel, under Saudi Arabia’s coercion, try to reach a deal on cutting on production.

The organization pledged to remove 1.2 millions barrels of oil a day from global oil production if non-OPEC countries, like Russia, increase their production.

This action will eventually lead to a rise in the oil price to above $50, even above $60 within weeks, per barrel due to a great decrease in the supply of oil, as much as 2% of global production. It may mark the beginning of the end of a two-year glut in the world’s oil market.

Since September, Saudi Arabia’s oil minister and his Iranian counterpart have been engaging in a game of brinkmanship that, if failed, would push the price of oil below $40 a barrel. However, Saudi Arabia was wise enough to realize that pragmatism is the best choice, so it chose to cut down 4.6% of its oil production, and so did other OPEC members.

The cut will take effect on January 1st, and it will greatly reduce the global oil inventories next year. Non-OPEC output has fallen this year, adding more impetus to the cartel’s efforts. If oil production decreases and oil price increases, America shale producers will have the incentive to produce more output, but their ability to produce low-cost oil has been exaggerated, so this may not happen as very swiftly and easily as it is said. Nonetheless, many shale producers have been standing still, despite OPEC’s many efforts to kill them. The cartel, after all, haven’t been able to declare even a Pyrrhic victory from the past two years.


Because the state has regulated the petrolium price and decided to increase it, Uber has decided to reimburse its drivers based on several levels. There is an 48.6% increase on octane 80, 39.2% increase in octane 92, and 30.5% of diesel. In order to maintain and promote its business and prevent economic loss from happening, Uber Egypt division has decided to reimburse its drivers. This follows the rule of subsidies, drivers are mostly taxed as their demand of petrolium is very inelastic, as a result, they get the most of compensation. Uber create incentives for drivers to drive more as their current policy is that the more trip you drive, the more subsidies you get. This is a clear demonstration of an attempt of creating incentives and trying to main economic profit while new policies are in effect.


A Plague of Pigs in Texas

Wild boars are extremely destructive creatures, digging up and destroying crops and farmland. These creatures are scattered in many states but most predominantly in Texas where they cause millions of dollars worth of damage each year. Due to the amount of damage caused by the boar Texas has lowered the cost of tags and increased the hunting season (for boar) to give hunters a greater incentive to hunt. With no tags required and a year-round hunting season, by virtue of their sport, hunters provide an external benefit to farmers and the state of Texas by lowering the boar population.


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Economics Nobel prize winners: theories explained

The Nobel prize in Economics this year went to Oliver Hart and Bengt Holmström for their research on contracts and corporations. While their work can be highly technical, one of our textbook authors, Tyler Cowen, explains some of their findings here. Some of their work explains how contracts can be well-designed. Other work by Holmström shows that in other cases, such as medical insurance deductions, “there isn’t a rigorous way to get this trade-off just right.”