Shadow Price Specification of Natural Gas in Production Activities of the Iranian Economy

Natural gas plays a key role in Iran’s economy and using its shadow price in allocating it to different sectors can lead to optimal use of this resource. This study uses a non-linear input-output model to estimate the shadow price of natural gas in different economic sectors in Iran. The study uses values of the input-output table constructed by the Statistics Center of Iran for the year 2011. Using the non-linear input-output model allows us to simultaneously specify the shadow price of gas in different productive activities. In addition, the model can specify different values for shadow prices of different units of gas consumed by the same activity.  The simultaneity of these two features distinguishes the present study from previous ones conducted in the country. According to our research, the shadow price of gas in productive activities is dependent on the change in outputs stemming from changes in natural gas consumption. However, the shadow price of gas is often neglected in  allocating natural gas to different activities. Except for the production, transmission, and distribution of electricity, the use of natural gas in other activities is profitable with an 11 to 98 percent increase in gas prices. JEL Classification: C02, C67, Q34, Q47   Keywords: Input-Output Analysis, Natural Gas, Shadow Price, Iran