An Economic Analysis of Income Growth by U.S. Oil Firms: The Roles of U.S. Oil Regulation and OPEC

This essay develops a new methodology for using accounting income data to estimate the economic gains and losses experienced by firms from any form of regulation. Rigorously derived from the theory of the firm, a variance components model relates the time-series cross-section variability in firm income growth to firm-specific operating characteristics and industry-wide conditions related to regulatory institutions. The model is used to ascertain how U.S. oil firms were affected by U.S. petroleum price regulation and OPEC pricing policies during the 1970s. Two major economic interpretations are supported by the results: (1) U.S. oil price regulation transferred income from U.S. crude oil producing to U.S. refining interests, without any benefit provided to U.S. consumers; and (2) foreign crude oil production subsidiaries for U.S. firms were not beneficiaries of increased world prices for crude oil.