Do Oil Producers Extract More as They Become Richer? A Natural Experiment Using Unanticipated Reserve Discoveries

The relationship between oil reserves and oil extraction has recently become of interest to research community. Current empirical literature lacks an identification strategy that addresses endogeneity problem. This study takes advantage of (arguably) exogenous reserves discoveries to identify the effect of size of reserves on oil production. Our findings show that although in general oil producing countries increase their production after one year of new reserve discovery, OPEC countries in particular prefer to leave the new stock under the ground possibly because of real option value of the new reserves.