Optimal rate of oil production for OPEC-member countries

Abstract

This paper questions the applicability of the traditional analysis of exhaustible resources, which is based on the assumption of profit maximization, to the case of OPEC members' oil production policies. The paper argues that each OPEC member is nowadays basing its oil extraction decision on its requirements of foreign exchange, and other essentials of development planning, rather than the implications of pure profit maximization. The paper then utilizes a control theory approach to establish a national planning model through which each OPEC member's oil extraction policy is related to the structure of its economy as well as the welfare of its nation. The distinct feature of this model is its applicability. This characteristic is preserved as far as the paper proceeds to introduce the required algorithm for the actual computation of optimal policies. Application of this procedure to the case of Iran demonstrates, further, the straightforward manner of its utilization.