Do Americans Consume Too Little Natural Gas? An Empirical Test of Marginal Cost Pricing
نویسندگان
چکیده
This article measures the extent to which prices exceed marginal costs in the U.S. natural gas distribution market during the period 1991-2007. We find large departures from marginal cost pricing in all 50 states, with residential and commercial customers facing average markups of over 40%. Based on conservative estimates of the price elasticity of demand these distortions impose hundreds of millions of dollars of annual welfare loss. Moreover, current price schedules are an important pre-existing distortion which should be taken into account when evaluating carbon taxes and other policies aimed at addressing external costs.
منابع مشابه
CSEM WP 194 Do Americans Consume Too Little Natural Gas? An Empirical Test of Marginal Cost Pricing
A standard result in regulation is that efficiency requires that marginal prices be set equal to marginal costs. This paper performs an empirical test of marginal cost pricing in the natural gas distribution market in the United States during the period 1989-2008. For all 50 states we reject the null hypothesis of marginal cost pricing. Departures from marginal cost pricing are particularly sev...
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