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The Target Revenue Model and the World Oil Market: Empirical Evidence from 1971 to 1994

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  • A.F. Alhajji
  • David Huettner

Abstract

This study draws on other studies that concluded OPEC is not a cartel and Saudi Arabia acts as a dominant producer in the world oil market. The intention here is to see whether the Target Revenue (TR) model provides an explanation for the behavior of some OPEC members that do not coordinate production with Saudi Arabia. We investigate whether production cuts or increases by OPEC and non OPEC members are based on their investment or budgetary needs. By retesting the TR model, we show that investment and budgetary needs do not affect the production of oil in free-market economies (OPEC and non-OPEC), but they do affect production decisions of the more centrally-planned, isolated and oil dependent economies. Existing studies in the literature have conceptual and statistical limitations that justify retesting the model. This study is the first to investigate the TR model in a separate study and to compare the results of static and dynamic models. It is also the first to examine the relationship between the degree of economic freedom and the Target Revenue model and to note the TR model is stable when used for countries that are price takers.

Suggested Citation

  • A.F. Alhajji & David Huettner, 2000. "The Target Revenue Model and the World Oil Market: Empirical Evidence from 1971 to 1994," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 121-144.
    • Handle: RePEc:aen:journl:2000v21-02-a06
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    Cited by:

    1. Christoph Bohringer & Knut Einar Rosendahl & Jan Schneider, 2014. "Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?," The Energy Journal, , vol. 35(4), pages 79-100, October.
    2. Radoslaw Stefanski, 2014. "Structural Transformation and the Oil Price," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 484-504, July.
    3. Güntner, Jochen H.F., 2014. "How do oil producers respond to oil demand shocks?," Energy Economics, Elsevier, vol. 44(C), pages 1-13.
    4. Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    5. Durand-Lasserve, Olivier & Pierru, Axel, 2021. "Modeling world oil market questions: An economic perspective," Energy Policy, Elsevier, vol. 159(C).
    6. Radoslaw Stefanski, 2014. "Structural Transformation and the Oil Price," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 484-504, July.
    7. Yang, C. W. & Hwang, M. J. & Huang, B. N., 2002. "An analysis of factors affecting price volatility of the US oil market," Energy Economics, Elsevier, vol. 24(2), pages 107-119, March.
    8. Alhajji, A. F. & Huettner, David, 2000. "OPEC and other commodity cartels: a comparison," Energy Policy, Elsevier, vol. 28(15), pages 1151-1164, December.
    9. Mohn, Klaus, 2009. "Elastic Oil. A primer on the economics of exploration and production," UiS Working Papers in Economics and Finance 2009/10, University of Stavanger.
    10. Parnes, Dror, 2019. "Heterogeneous noncompliance with OPEC's oil production cuts," Energy Economics, Elsevier, vol. 78(C), pages 289-300.
    11. Daniel Huppmann & Franziska Holz, 2015. "What about the OPEC Cartel?," DIW Roundup: Politik im Fokus 58, DIW Berlin, German Institute for Economic Research.
    12. Daniel Huppmann & Franziska Holz, 2012. "Crude Oil Market Power—A Shift in Recent Years?," The Energy Journal, , vol. 33(4), pages 1-22, October.
    13. Géraud Krähenbühl, 2015. "Supply Analysis of the Forestry Industry," IRENE Working Papers 15-08, IRENE Institute of Economic Research.

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    JEL classification:

    • F0 - International Economics - - General

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