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OPEC Production: The Missing Link

Author

Listed:
  • James M. Griffin
  • Lawrence M. Vielhaber

Abstract

The future of oil depends critically on the production decisions of OPEC, which in turn depend on a variety of factors internal and external to the cartel. This paper uses a simulation of the world oil market to compute the, payoff to OPEC members of alternative price and production profiles, focusing on the incentives to cooperate as well as to cheat. A "tit-for-tat" strategy by the, Saudis significantly reduces the incentives to cheat, but the payoff for cheating is still positive for the smaller OPEC producers. Accordingly, prices well below the cartel's joint profit maximizing level seem most likely.

Suggested Citation

  • James M. Griffin & Lawrence M. Vielhaber, 1994. "OPEC Production: The Missing Link," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 115-132.
    • Handle: RePEc:aen:journl:1994si-a06
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    Citations

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    Cited by:

    1. Hamed Ghoddusi & Franz Wirl, 2019. "A Risk-Hedging View to Refinery Capacity Investment," Working Papers 1327, Economic Research Forum, revised 21 Aug 2019.
    2. Mason, Charles F. & Polasky, Stephen, 2005. "What motivates membership in non-renewable resource cartels?: The case of OPEC," Resource and Energy Economics, Elsevier, vol. 27(4), pages 321-342, November.
    3. Stevens, Paul, 1997. "Increasing global dependence on Gulf oil: `This year, next year, sometime, never?'," Energy Policy, Elsevier, vol. 25(2), pages 135-142, February.
    4. Stevens, Paul, 1996. "Oil prices : The start of an era?," Energy Policy, Elsevier, vol. 24(5), pages 391-402, May.
    5. Griffin, James M & Xiong, Weiwen, 1997. "The Incentive to Cheat: An Empirical Analysis of OPEC," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 289-316, October.
    6. Greene, David L & Jones, Donald W & Leiby, Paul N, 1998. "The outlook for US oil dependence," Energy Policy, Elsevier, vol. 26(1), pages 55-69, January.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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