A Long Term Model of Oil Markets, Economic Growth and Balance of Payment Constraints

Alan Manne and Thomas Rutherford ()

Empirical Economics, 1991, vol. 16, issue 1, 69 pages

Abstract: This paper describes LTM, a long term model of oil markets, economic growth and balance of payments constraints. In this paper the model is used to investigate the role of the demand elasticity for oil in determining OPEC's profit-maximizing production profile. Our experiments reveal that in a model with intertemporal substitution and endogenous capital formation, gross revenue curves are fairy flat. Hence their economic optimum is virtually indeterminate. This suggests considerable leeway in OPEC's determination of pricing and production policies.

Date: 1991
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