A Non-Linear Analysis of the Nature of Quota Violations in the OPEC Members; Results from a Panel Threshold Analysis

The main objective of this paper is to investigate the nature of quota violation behavior in OPEC members. We examined herding behavior (co-movement) and quota violation in a non-linear panel data model for 9 selected OPEC members. In terms of heterogeneity in OPEC member states, the level of dependence on oil revenues (threshold variable) as a country-specific characteristic has been involved in our model. Results showed that there was a positive and significant relationship between the violation of the allocated quota in a country and other members. In other words, there is a co-movement between the violations of the quota among OPEC members. Also, in countries which the level of dependence on oil export revenues is higher than the threshold (54%), the violation of allocated quotas is 1.5 times higher than countries with less dependency on oil export revenues. Increasing the dependence on oil revenues (Mainly due to budget constraints) incentivizes the OPEC members to be violated from established quota and consequently, reduces the efficiency of the quota system.