DOES A TARGET-CAPACITY UTILIZATION RULE FULFILL OPEC ECONOMIC OBJECTIVES

This paper uses the US Energy Information Administration's Oil Market Simulation model to evaluate the ability of a target-capacity rule to satisfy OPEC's economic objectives. We show that when demand and suppl y lags exist OPEC's optimal price path may consist of periods of low p rices followed by a one or two period price shock. The TCU rule does n ot display periodic price shocks and thus generates less discounted re venue over the planning period. The TCU rule comes closest to the opti mum either when there are no lags or when OPEC optimizes subject to a minimum revenue constraint.