When appraising investment projects from a public perspective, a barrel of oil displaced from or added to domestic consumption has to be valued at its opportunity cost. This paper develops a partial-equilibrium framework to assess the opportunity cost of domestic oil consumption for an oil-exporting country. The framework takes into account that (i) the usual ‘small economy’ assumption does not necessarily hold, (ii) the domestic oil price can be set either at a fixed level or as a function of the international price, and (iii) oil production, level of exports, or domestic consumption can be constrained. We derive the opportunity cost for each case considered and a formula quantifying the net welfare gains from reforming the domestic oil price1st March 2020
Fatih is a research fellow at KAPSARC.He received his Ph.D. in economics from the Pantheon-Sorbonne University in Paris and his M.A. in economic analysis and modeling jointly from the Pantheon-Sorbonne University and the École Centrale Paris. Before joining KAPSARC in December 2017, Fatih was a research fellow at EconomiX-CNRS and an associate professor of economics at the University of Paris, Nanterre, where he taught econometrics, energy economics, and environmental economics.
Fatih’s current research focuses mainly on developing economic frameworks to provide insights into energy policymaking in oil-producing countries. His research has been published in general-interest economics journals (e.g., Applied Economics, Journal of Comparative Economics and Macroeconomic Dynamics), as well as journals on energy economics (e.g., Energy Economics, Energy PolicyandThe Energy Journal).