Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program

Chang-Tai Hsieh and Enrico Moretti

The Quarterly Journal of Economics, 2006, vol. 121, issue 4, 1211-1248

Abstract: From 1997 through 2003, the UN Oil for Food Program allowed Iraq to export oil for humanitarian supplies. We hypothesize that Iraq deliberately set the price of its oil below market prices to solicit bribes from oil buyers. By comparing the price gap between Iraqi oil and its close substitutes during the Program to the gap prior to the Program, we find evidence of significant underpricing. Our central estimate suggests that Iraq collected $1.3 billion in bribes from underpricing its oil, or 2 percent of oil revenues. Underpricing is higher during periods of high volatility in oil markets—when detection is more difficult—but declines after the UN limited Iraq's ability to set the price of its oil.

Date: 2006
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