ABSTRACTDISTORTIONS IN OIL CONTRACT ALLOCATION AND THE ROLE OF CORRUPTION IN SPATIAL PRICE TRANSMISSION OF CRUDE OIL PRICESByHenry Ogadinma AkaezeThis dissertation has two papers. The first investigates how distortions stemming from corruption can alter government oil contract allocation decisions. The second examines the role of corruption in influencing crude oil price determination and spatial transmission of crude oil prices across international markets. Both papers have theoretical and empirical components. The first paper focuses on how corrupt behavior influences a government official’s contract allocation decision and increases the likelihood of a high cost efficiency multinational oil company getting the contract ahead of a low cost efficiency but low environmental damage oil company. The government gets a lower payoff with corruption compared to the no-corruption case, creating economic inefficiency. The major implication is that corruption creates economic inefficiency, reduces the official’s concern for environmental damage, and lowers the government payoff. The key model prediction is that oil production is more responsive to price when corruption is influencing allocation decisions. The empirical application tests this prediction. The second paper explores the link between crude oil corruption and spatial price transmission using Nigeria as a case study. A key prediction of the model is that, in the presence of corruption, Nigerian oil prices will be more sensitive to changes in world prices than they would be otherwise. Empirical results support that corruption influences Nigerian oil prices and increases the responsiveness of Nigerian prices to changes in world prices.
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