The Limits of OPEC in the Global Oil Market 607 The third test reveals that OPEC quotas do a poor job of accounting for variation in production levels.Table 1 also shows the R-squared value of a linear bivariate time- series regression between changes in an OPEC member's production and changes in its quota.45 For all but two of the states (Libya and Algeria),changes in the OPEC quota are not correlated with production at standard thresholds of statistical signifi- cance.The R-squared for the nine major OPEC producers as a group was just 0.018,meaning that at most 1.8 percent of the variation in the month-to-month changes in this group's oil production can be explained by changes in their OPEC quotas.In other words,at least 98 percent of the variation is explained by factors other than changes in their OPEC quotas. Even in the face of this evidence,one could still argue that OPEC acts as a cartel in one of two ways.First,one could argue that anticipation by various actors in the oil market obscure OPEC's constraining effect.For instance,perhaps OPEC members change production levels between OPEC meetings because they anticipate forthcom- ing changes in the quotas.46 Second,one could argue that even if OPEC's quota system is entirely meaningless,OPEC still affects oil production over the long term because it encourages the adoption of a slow depletion policy and underinvest- ment in production capacity.47 Both of these propositions have a clear empirical implication:the oil production or depletion rate of OPEC member states ought to be significantly less than the production/depletion rate of comparable non-OPEC members.This leads to my fourth test. Final Test:Do OPEC Members Have Slow Depletion Rates? Depletion rates vary widely around the world.(A country's depletion rate is equal to its oil production divided by its proven oil reserves.)Broadly speaking,depletion rates will vary according to three supply-side factors (in addition to global demand for oil):the business climate of the producing country (for example,companies'tech- nical skills,investment climate,the incidence of war or sanctions,etc.);the "lift costs"of oil production (costs of getting oil to the ground,including exploration); and the government's depletion policy.OPEC membership could affect depletion policy,but so could other factors,such as the state's fiscal needs,the incentives gen- erated by its position in the global market (or example,as a"dominant firm"),and the time horizons of the political leadership. I investigate the cross-national variation in depletion rates over a thirty-year period,1980-2010.48 The analysis includes all forty-two oil-producing states 45.Formally,the dependent variable is the first difference in oil production,and the independent variable is the first difference in oil quota.The observations are monthly,although the values are measured in barrels per day. 46.Para2004,321-22. 47.Smith2009. 48.BP Statistical Review of World Energy provides data on proven reserves starting only in 1980.The third test reveals that OPEC quotas do a poor job of accounting for variation in production levels. Table 1 also shows the R-squared value of a linear bivariate time￾series regression between changes in an OPEC member’s production and changes in its quota.45 For all but two of the states (Libya and Algeria), changes in the OPEC quota are not correlated with production at standard thresholds of statistical signifi- cance. The R-squared for the nine major OPEC producers as a group was just 0.018, meaning that at most 1.8 percent of the variation in the month-to-month changes in this group’s oil production can be explained by changes in their OPEC quotas. In other words, at least 98 percent of the variation is explained by factors other than changes in their OPEC quotas. Even in the face of this evidence, one could still argue that OPEC acts as a cartel in one of two ways. First, one could argue that anticipation by various actors in the oil market obscure OPEC’s constraining effect. For instance, perhaps OPEC members change production levels between OPEC meetings because they anticipate forthcom￾ing changes in the quotas.46 Second, one could argue that even if OPEC’s quota system is entirely meaningless, OPEC still affects oil production over the long term because it encourages the adoption of a slow depletion policy and underinvest￾ment in production capacity.47 Both of these propositions have a clear empirical implication: the oil production or depletion rate of OPEC member states ought to be significantly less than the production/depletion rate of comparable non-OPEC members. This leads to my fourth test. Final Test: Do OPEC Members Have Slow Depletion Rates? Depletion rates vary widely around the world. (A country’s depletion rate is equal to its oil production divided by its proven oil reserves.) Broadly speaking, depletion rates will vary according to three supply-side factors (in addition to global demand for oil): the business climate of the producing country (for example, companies’ tech￾nical skills, investment climate, the incidence of war or sanctions, etc.); the “lift costs” of oil production (costs of getting oil to the ground, including exploration); and the government’s depletion policy. OPEC membership could affect depletion policy, but so could other factors, such as the state’s fiscal needs, the incentives gen￾erated by its position in the global market ( or example, as a “dominant firm”), and the time horizons of the political leadership. I investigate the cross-national variation in depletion rates over a thirty-year period, 1980–2010.48 The analysis includes all forty-two oil-producing states 45. Formally, the dependent variable is the first difference in oil production, and the independent variable is the first difference in oil quota. The observations are monthly, although the values are measured in barrels per day. 46. Parra 2004, 321–22. 47. Smith 2009. 48. BP Statistical Review of World Energy provides data on proven reserves starting only in 1980. The Limits of OPEC in the Global Oil Market 607