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A Model of Optimal Dynamic Oil Extraction: Evidence From a Large Middle Eastern Field

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  • Robin Sickles
  • Peter Hartley

Abstract

We model the economically optimal dynamicoil production decisions of a representative country whose oilfields resemble the largest developed oil field in Saudi Arabia,Ghawar. A government-controlled enterprise may base its oil productiondecisions on criteria other than maximization of the presentdiscounted value of profits. In particular, oil production decisionsare likely to reflect many political, strategic and geopoliticalmotives of the government. Our analysis of the optimal economicdecisions nevertheless enables one to assess the extent to whichlong-run value maximization is being followed. This in turn allowsone to judge the costs that political decisions are imposingin terms of foregone economic output, government revenue andforeign exchange. These costs ought to be of interest to policy-makerswithin Saudi-Arabia and also to external parties interested inmodifying Saudi pricing and production decisions. Copyright Kluwer Academic Publishers 2001

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  • Robin Sickles & Peter Hartley, 2001. "A Model of Optimal Dynamic Oil Extraction: Evidence From a Large Middle Eastern Field," Journal of Productivity Analysis, Springer, vol. 15(1), pages 59-71, January.
    • Handle: RePEc:kap:jproda:v:15:y:2001:i:1:p:59-71
    DOI: 10.1023/A:1026547923853
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    References listed on IDEAS

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    1. Sickles, Robin C. & Williams, Jenny, 2008. "Turning from crime: A dynamic perspective," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 158-173, July.
    2. Stephen G. Powell, 1990. "The Target Capacity-Utilization Model of OPEC and the Dynamics of the World Oil Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 27-64.
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    4. Fousekis, Panos & Stefanou, Spiro E, 1996. "Capacity Utilization under Dynamic Profit Maximization," Empirical Economics, Springer, vol. 21(3), pages 335-359.
    5. Griffin, James M, 1977. "The Econometrics of Joint Production: Another Approach," The Review of Economics and Statistics, MIT Press, vol. 59(4), pages 389-397, November.
    6. Griffin, James M, 1978. "Joint Production Technology: The Case of Petrochemicals," Econometrica, Econometric Society, vol. 46(2), pages 379-396, March.
    7. Hartley, Peter R, 1994. "Interest Rates in a Credit Constrained Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 23-60, February.
    8. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
    9. Hartley, Peter R., 1996. "Value function approximation in the presence of uncertainty and inequality constraints an application to the demand for credit cards," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 63-92.
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    Cited by:

    1. Bems, Rudolfs & de Carvalho Filho, Irineu, 2011. "The current account and precautionary savings for exporters of exhaustible resources," Journal of International Economics, Elsevier, vol. 84(1), pages 48-64, May.
    2. Franz Hamann & Jesús Bejarano & Diego Rodríguez, 2015. "Monetary policy implications for an oil-exporting economy of lower long-run international oil prices," Borradores de Economia 12615, Banco de la Republica.
    3. Jesús Bejarano & Franz Hamann & Paulina Restrepo-Echavarria & Diego Rodríguez, 2016. "Monetary Policy in an Oil-Exporting Economy," Review, Federal Reserve Bank of St. Louis, vol. 98(3), pages 239-261.

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