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.
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This work has been supported by the U.S.-Mexico Project and the Center for Economic Policy Research at Stanford University as well as by the U.S. Department of Energy. Helpful suggestions have been received from Bagicha S. Minhas. The individual authors are solely responsible for the views expressed here.
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Manne, A.S., Rutherford, T.F. A long term model of oil markets, economic growth and balance of payment constraints. Empirical Economics 16, 51–69 (1991). https://doi.org/10.1007/BF01205345
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DOI: https://doi.org/10.1007/BF01205345