chapter  3
34 Pages

Informal Models

In this section, we survey the ‘informal’ models of the oil market. They are exposed with little or no mathematical symbolism, and with careful attention to institutional detail, at the cost of assumptions which are not always explicitly stated, and some blurring of the distinction between assumptions and results. The majority of economists who write on the oil market employ informal modeling. Because they are not constrained by the necessity to find a mathematical formulation, they can address directly, if sometimes with limited rigor, the puzzles of the oil market. As a result, the informal literature has been able to define a different set of questions than the theoretical literature. It has been much less concerned with the implications of exhaustibility, and instead has concentrated on institutional issues, such as the organi­ zation of OPEC, closer to the subject matter of industrial organi­ zation. This literature is also important because of its impact on policy, due to its easier accessibility for a lay audience. Most policy issues have been debated in terms of informal models and it is mainly through this literature that our profession has influenced policy and the perceptions of the public on oil and energy questions.