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THE WORLD OIL CRISIS: A PORTFOLIO INTERPRETATION
Author(s) -
Levy HAIM,
Sarnat MARSHALL
Publication year - 1975
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1975.tb00254.x
Subject(s) - economics , portfolio , incentive , modern portfolio theory , investment (military) , petroleum , inflation (cosmology) , index (typography) , financial economics , microeconomics , paleontology , physics , politics , theoretical physics , political science , world wide web , computer science , law , biology
This paper applies the mean‐variance portfolio model to the analysis of one facet of the production decision confronting the oil exporting countries. Specifically we assume that the countries in question seek the optimal solution to the problem of diversifying their assets between oil reserves in the ground and other non‐petroleum investment alternatives. With respect to the group of countries which tend to accumulate money resources in excess of their domestic development needs (e. g., Saudi Arabia and Kuwait) the availability of an “inflation‐proof” investment outlet whose principal and interest are linked to a general index of the change in world prices is likely to enhance these countries' incentive to extract oil from the ground on portfolio considerations alone.