Gal Hochman, after receiving his Ph.D. in Economics at Columbia University in 2004, joined the Faculty of Indstrial Engineering and Management at the Technion, Israel. Since September 2007, he is visiting UC Berkeley. Gal works on trade agreements, energy, the environment, and biotechnology. While Gal’s research on trade agreements sheds new light on the economics of multilateral trade agreements, and shows how uncertainty affects the enforceability of these self-enforcing agreements. Gal’s research on energy shows the importance of modeling OPEC as a cartel-of-nations but also quantifies the importance of inventories in the 2007/08 food commodity price spike. Gal has attended and presented papers at numerous conferences, including the ASSA, the ACS, the CEA, the Econometric Society, the EEA, and the IAEE.

Abstract: Building on the political economy literature, we develop a conceptual model and apply it to explain the OPEC pricing behavior. We model OPEC as a cartel-of-nations where politician use two instruments: production quotas and domestic fuel consumption subsidies. Our model explains the wedge between domestic fuel prices in OPEC countries and in the rest of the world. The empirical estimates show that when OPEC sets the production quotas it places similar weights on consumers and producers welfare. But when OPEC countries set the subsidies some countries place extra weight on consumer benefits from domestic fuel consumption. Our analysis suggests OPEC pricing behavior employs domestic cheap oil policies.