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Modeling OPEC behavior: economic and political alternatives

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  • Moran, Theodore H.

Abstract

The predominant approach to modeling OPEC behavior depends upon the assumption that economic self-interest provides the best predictor of the cartel's price and production strategy. With rational monopoly behavior, the exogenous characteristics of the oil market determine an optimal price path for the group. But OPEC members have diverse economic as well as political goals. And uncertainty about oil market responses provides substantial leeway to argue about what is optimal. An examination of the five key OPEC price decisions since 1973 shows that an operational code of advancing political priorities on Arab-Israeli issues while deflecting security challenges better explains Saudi Arabia's decision-making than the economic optimizing approach. Moreover, no economic formula alone is consistent with Saudi behavior. The balance of internal and external forces of a political or security character on Saudi leadership suggests more of a tilt toward price hawkishness than pure considerations of economic self-interest would indicate. This tilt is reinforced by a systematic weakness on the part of the U.S. government to exercise a sustained countervailing influence on the Kingdom on behalf of moderation.

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  • Moran, Theodore H., 1981. "Modeling OPEC behavior: economic and political alternatives," International Organization, Cambridge University Press, vol. 35(02), pages 241-272, March.
  • Handle: RePEc:cup:intorg:v:35:y:1981:i:02:p:241-272_03
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    Cited by:

    1. Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    2. Gal Hochman & Deepak Rajagopal & David Zilberman, 2011. "The Effect of Biofuels on the International Oil Market," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(3), pages 402-427.
    3. Ayoub, Antoine, 1994. "Le pétrole : économie et politique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 70(4), pages 499-520, décembre.
    4. Bandyopadhyay, Kaushik Ranjan, 2009. "Does OPEC act as a Residual Producer?," MPRA Paper 25841, University Library of Munich, Germany, revised 2010.
    5. Rosser, J. Jr. & Sheehan, Richard G., 1995. "A vector autoregressive model of the Saudi Arabian economy," Journal of Economics and Business, Elsevier, vol. 47(1), pages 79-90, February.
    6. Gary Libecap & James L. Smith, 2001. "Political constraints on government cartelization: the case of oil production regulation in Texas and Saudi Arabia," ICER Working Papers 16-2001, ICER - International Centre for Economic Research.
    7. Colgan, Jeff D., 2014. "The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market," International Organization, Cambridge University Press, vol. 68(03), pages 599-632, June.
    8. Güntner, Jochen H.F., 2014. "How do oil producers respond to oil demand shocks?," Energy Economics, Elsevier, vol. 44(C), pages 1-13.
    9. Hochman, Gal & Zilberman, David, 2015. "The political economy of OPEC," Energy Economics, Elsevier, vol. 48(C), pages 203-216.
    10. Sabine Bockem, 2004. "Cartel formation and oligopoly structure: a new assessment of the crude oil market," Applied Economics, Taylor & Francis Journals, vol. 36(12), pages 1355-1369.

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