What motivates membership in non-renewable resource cartels?: The case of OPEC

In this paper, we analyze the question of membership in a non-renewable resource cartel, with specific application to OPEC. One would expect the benefits of cartel membership to be positively related to the size of remaining reserves, while domestic petroleum consumption should be negatively related to membership if countries care about consumer interests. Our econometric analysis indicates that larger reserves and lower consumption are positively associated with OPEC membership. On the other hand, membership does not appear to be systematically related to countries’ religious makeup. Our regressions correctly predict membership for the vast majority of oil-producing countries.     

Dynamic demand,consumers' expectations and monopolistic resource extraction: An application to OPEC pricing policies

This paper introduces intertemporal decision making of the consumers, including different price expectations (myopic, rational), into the framework of monopolistic resource depletion. This adds another dynamic feature which has been neglected by and large by the literature. In particular a differential game of the von Stackelberg type between consumers and an oil extracting monopoly is considered. Analytical solutions are obtained when demand is linear. This framework is then empirically applied to derive and reconcile rational OPEC strategies and past behaviour.This paper has been presented at the Third Annual Conference of the European Economic Association in Bologna. I like to thank an anonymous referee and Dr. Ohogu for valuable comments.     

Investing exhaustible resource rents and the path of consumption

Abstract.  We set out dollar‐valued net national product for an economy with a wasting essential stock (oil deposit). We take up 'maintaining capital intact' and locally unchanging consumption. The percentage change in 'net investment' or 'genuine savings,' relative to the market rate of interest, denotes whether current consumption is rising, constant, or declining. JEL classification: O13, Q28, F0     

The welfare implications of resource allocation policies under uncertainty: The case of public education spending

In this paper, we examine whether policy interventions, aimed at improving resource allocation, also have important stabilization effects over the business cycle. To this end, we employ a dynamic stochastic general equilibrium model in which public education expenditures, financed by distorting taxes, enhance the productivity of private education choices. We then calculate the welfare implications of competing operating targets using a state-contingent instrument rule for public education spending. Our main findings are: (i) there can be important cyclical effects of different resource allocation policies depending on the operating target used and the degree of macroeconomic uncertainty; (ii) it is important to use an operating target which is as close as possible to the heart of the market imperfection that justifies policy action; (iii) policy action should not be monotonic in the degree of macroeconomic uncertainty.     

Monopoly extraction of an exhaustible resource with two markets

Abstract.  Although much has been written about monopoly extraction of natural resources, the case of a resource being sold in two separate markets has escaped notice. We find that a monopolist facing two different iso‐elastic demand schedules extracts more rapidly than the social planner, whether or not arbitrage prevents price discrimination between markets. JEL classification: D42, Q3     

Sustainability of an economy with an exhaustible resource: A viable control approach

We examine the conditions for the sustainability of a production–consumption system based on the use of an exhaustible natural resource. Instead of studying the environmental and economic interactions in terms of optimal control, we focus on the viability of the system, defined by a set of constraints combining guaranteed consumption and a stock of resources to be preserved at all times, which refers to a Rawlsian intergenerational equity perspective. Using the mathematical concept of viability kernel, which makes it possible to deal with the consistency between constraints and controlled dynamics, we exhibit the sustainable technological configurations and, whenever possible, the policy options and environmental-economic states required to obtain a perennial system. We point out the flexibility of the sustainable “extraction–consumption” choices and we show how they are neither reduced to constant consumption paths nor to Hartwick’s rule. Numerical simulations illustrate the general results.     

Optimal exporting of exhaustible resources with endogenous trade revenue: The case of a resource-scarce and capital-short economy

This paper discusses a dynamic trade problem of a resource-scarce and capital-short open economy. In this economy, exhaustible resources are traded for foreign capital. Different from previous research on similar topics, the models in this paper allows for endogenous export revenue. The optimal trade behavior of the economy is discussed here. The efficiency conditions for the optimal trading under various assumptions are derived. These conditions correspond to the noted Hotelling rules in a closed economy. Finally, policy implications of the results are presented.     

The critical discount factor as a measure for cartel stability?

This paper considers the stability of tacit collusion in price setting duopolies with repeated interaction. The minimum discount factor above which tacit collusion can be sustained in a subgame perfect equilibrium is called the critical discount factor δ*. In addition, δ* is often used as an intuitive measure for the stability of a tacit cartel, assuming that a collusive equilibrium is more difficult to sustain when δ* increases. However, according to standard theory the distance δ − δ* between the actual and the critical discount factor does not matter for stability as long as δ > δ*. This paper contributes experimental evidence that supports the intuitive idea that a larger critical discount factor makes collusion a less likely outcome.      

The two-part instrument in a second-best world

Standard Pigovian tax theory has been extended in two directions. First, many polluting activities are difficult to tax because they are not market transactions, and so recent papers have shown that the same effects can be achieved by use of a two-part instrument (2PI): a tax on output or income and a subsidy for clean alternatives to pollution. It is a generalization of a deposit–refund system (DRS). Second, a different literature concerns the second-best pollution tax in the presence of other tax distortions. Here, we combine the two extensions by looking at the second-best 2PI. When government needs revenue, is the deposit larger and the rebate smaller? We find explicit solutions for each tax and subsidy in a general equilibrium model with other tax distortions, and we compare these to the rates in a first-best model. The tax–subsidy combination is explained in terms of a tax effect, an environmental effect and a revenue effect. The model allows for flexible interpretation to show various applications of the 2PI. We also discuss important caveats.     

Cooperative policies among the North,the South,and OPEC: An optimal control application

While the benefits of a global policy coordination effort are known in theory, empirical estimates of the gains of such a move are difficult to come by, casting doubts on whether global policy coordination will ever occur. In this paper we assess, empirically, the viability of cooperative policies among the North, the South, and OPEC. To this end we apply stochastic optimal control to a nonlinear stochastic dynamic econometric model of a three region world economy that highlights the channels of international transmission of oil price effects and the feedback effects of policy responses to oil price changes. Even if cooperative policies exist, and are implemented, not all the parties involved will benefit to the same extent. Thus we also examine the sensitivity of the distribution of income gains (or losses) between the North, the South, and OPEC to alternative specifications of the welfare function.     

The optimal depletion of exhaustible resources: A complete characterization

We provide the closed form solution to the Dasgupta–Heal–Solow–Stiglitz (DHSS) model. The DHSS model is based on the seminal articles Dasgupta and Heal, 1974, Solow, 1974 and Stiglitz (1974) and describes an economy with two assets, man-made capital and a nonrenewable resource stock. We explicitly characterize, for such an economy, the dynamics along the optimal trajectory of all the variables in the model and from all possible initial values of the stocks. We use the analytical solution to prove several properties of the optimal consumption path. In particular, we show that the initial consumption under a utilitarian criterion starts below the maximin rate of consumption if and only the resource is abundant enough and that under a utilitarian criterion, it is not necessarily the present generation that benefits most from a windfall of resources.     

Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia

In this paper, we study different and, in particular, “optimal” reactions of fiscal (and to some extent monetary) policies to the financial and economic crisis of 2007–2009 in Slovenia, a small open economy that is part of the Economic and Monetary Union (EMU). Using an econometric model of the Slovenian economy, we simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the crisis. Next, we study the possibilities of fiscal policy reducing or even annihilating the effects of the crisis. We also investigate the optimal reaction of fiscal policies based on the assumption that Slovenian policy-makers behave as though they were optimizing an objective function. We show that optimal policies call for only a very modestly active countercyclical role of fiscal policies. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency.     

The cartel of good intentions: The problem of bureaucracy in foreign aid

Well-meaning national and international bureaucracies dispense foreign aid under conditions in which bureaucracy fails. The environment that created aid bureaucracies led those organizations to (a) define their output as money disbursed rather than service delivered, (b) produce many low-return observable outputs (glossy reports and "frameworks") and few high-return less observable activities like ex - post evaluation, (c) engage in obfuscation, spin control, and amnesia (always describing aid efforts as "new and improved") exhibiting little learning from the past, (d) put enormous demands on scarce administrative skills in poor countries. To change this unhappy equilibrium, policymakers in rich and poor countries should experiment with decentralized markets, matching those who want to help the poor with the poor themselves freely expressing their needs and aspirations.     

Sharing a common resource in a sustainable development context: The case of a wood innovation system

This case study of the Aquitaine wood filière emphasizes the need to integrate a stronger consideration of natural resources in the analysis of innovation systems. The analysis focuses on eight eco-innovation projects representing the Aquitaine wood filière, and carried out under the aegis of the Industries and Maritime Pine of the Future ‘competitiveness cluster.’ We show that dependence on the wood natural resource can configure the limits, objectives and expected performance of such innovation systems. While previous approaches have considered similar innovation systems from territorial, sectoral or technological perspectives, we argue that centering the analysis on this natural resource better enables consideration of the technological and environmental tensions and risks that are likely to destabilize the system.     

The prospects for OPEC five years after 1973/74

This paper surveys more than a dozen models of OPEC and world energy markets that have appeared since 1976. Included are simulation models, optimization models, and analyses of energy balances. Attention is focused on the outlook for OPEC prices and the demand for OPEC oil exports over the next fifteen years. Virtually all analyses agree that substantial changes from current market conditions are unlikely over the next few years. Beyond 1985, however, some project a severe tightening in world oil markets, while others project no such change from current conditions.     

Credit policies,macroeconomic stability and welfare: The case of China

Using a new Keynesian DSGE model with credit constraints, we study the impact on macroeconomic volatility of a macroprudential credit policy of the type implemented by the Central Bank of China. We find that the countercyclical credit policy plays a non-negligible role in stabilizing the real economy, and that this effect is distinctly more pronounced when credit conditions are looser. By means of a second-order approximation method, we show that the macroprudential credit policy can significantly boost welfare, benefiting the entrepreneurial sector more than the household sector. The results can yield insights for the institutional and policy setting of China and other emerging countries.     

The family gap and family friendly policies: the case of Norway

Norway has among the most generous family policies in the world. The most recent is the cash-for-care reform, which was implemented in 1998. We answer two main questions in this article: What is the level of the family gap in such a generous regime and how has it developed as a consequence of the latest reform? Results suggest that the family gap is rather modest in Norway compared to many other countries and we find no evidence of a worsening of the gap in recent years. A positive interpretation of these results is that the Norwegian labour market is fairly flexible, in the sense that it seems to be able to absorb even more generous family policies.     

The prospects for OPEC: A critical survey of models of the world oil market

The paper critically surveys seven recent models of the world oil market and their evaluations of the prospects for OPEC: Blitzer-Meeraus-Stoutjesdijk, Bohi-Russell, the U.S. Federal Energy Administration, Kennedy, Kalymon, Levy and Nordhaus. After a brief discussion of the basic approaches to the problem, we examine the model specifications in some detail. The principal contributions and conclusions are summarized, as are the main limitations of these models. We conclude with some suggestions of the most promising areas for future research.