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World Oil: The Growing Case For International Policy

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  • 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.

Suggested Citation

  • Chapman, Duane & Khanna, Neha, 1999. "World Oil: The Growing Case For International Policy," Working Papers 7232, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudawp:7232
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    File URL: http://purl.umn.edu/7232
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    Citations

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    Cited by:

    1. Slaibi, Ahmad & Chapman, Duane & Daouk, Hazem, 2005. "An Econometric Evaluation of A Geopolitical Theory of Oil Price Behavior," Working Papers 127131, Cornell University, Department of Applied Economics and Management.
    2. Lin, C.Y. Cynthia, 2009. "An Empirical Dynamic Model of OPEC and Non-OPEC," Working Papers 225895, University of California, Davis, Department of Agricultural and Resource Economics.
    3. Duane Chapman & Neha Khanna, 2001. "An Economic Analysis Of Aspects Of Petroleum And Military Security In The Persian Gulf," Contemporary Economic Policy, Western Economic Association International, vol. 19(4), pages 371-381, October.
    4. Khalid Kisswani, 2014. "OPEC and political considerations when deciding on oil extraction," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(1), pages 96-118, January.
    5. Chapman, Duane & Khanna, Neha, 2004. "The Persian Gulf, Global Oil Resources,and International Security," Working Papers 127154, Cornell University, Department of Applied Economics and Management.
    6. Tang, Linghui & Hammoudeh, Shawkat, 2002. "An empirical exploration of the world oil price under the target zone model," Energy Economics, Elsevier, vol. 24(6), pages 577-596, November.
    7. Bharati, Rakesh & Crain, Susan J. & Kaminski, Vincent, 2012. "Clustering in crude oil prices and the target pricing zone hypothesis," Energy Economics, Elsevier, vol. 34(4), pages 1115-1123.

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