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WORLD OIL: THE GROWING CASE FOR INTERNATIONAL POLICY

Author
Chapman, Duane; Khanna, Neha
Abstract
Can the economic theory of depletion be reconciled with low petroleum? This paper uses a revision of the theory, which reflects demand functions that rise in response to increasing world population and income. The magnitude of producers’ and consumers’ surplus is estimated under both competitive and monopolistic assumptions; the result indicates a present value comparable to or in excess of today’s Gross World Economic Product. Game theory suggests a framework which explains the interaction between oil pricing and military policy, and the economic incentives which result in a general pattern of recent market equilibrium crude oil prices often fluctuating within a $15-$20 per barrel range. The analysis concludes that the economic incentives for political instability in the Persian Gulf will increase, and more formal methods of setting the international framework for Persian Gulf oil may be expected.
Description
WP 1999-13 July 1999 JEL Classification Codes: C61; Q32; Q41; Q43; Q48
Date Issued
1999-07-01Publisher
Charles H. Dyson School of Applied Economics and Management, Cornell University
Type
article