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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

Suggested Citation

  • 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. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
    2. Sickles, Robin C. & Williams, Jenny, 2008. "Turning from crime: A dynamic perspective," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 158-173, July.
    3. 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.
    4. Griffin, James M, 1978. "Joint Production Technology: The Case of Petrochemicals," Econometrica, Econometric Society, vol. 46(2), pages 379-396, March.
    5. Fousekis, Panos & Stefanou, Spiro E, 1996. "Capacity Utilization under Dynamic Profit Maximization," Empirical Economics, Springer, vol. 21(3), pages 335-359.
    6. Robert A. Marshalla & Dale M. Nesbitt, 1986. "Future World Oil Prices and Production Levels: An Economic Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-22.
    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.
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    Cited by:

    1. Rudolfs Bems & Irineu E de Carvalho Filho, 2009. "Current Account and Precautionary Savings for Exporters of Exhaustible Resources," IMF Working Papers 09/33, International Monetary Fund.

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