Oil supply disruptions and the optimal tariff in a dynamic stochastic equilibrium model

Technical Report · Sat Jan 01 04:00:00 EST 1983

OSTI ID:5494208

Eckstein, Z; Eichenbaum, M S

This paper has investigated the welfare enhancing role of government interventions in decentralized economies which face uncertainty regarding the price of energy. The economic effects of oil price uncertainty cannot be studied effectively without a truly dynamic theory of oil markets. This paper represents an important first step in building such a theory. A simple but complete model of an oil importing economy is developed in which capital stock adjustments are costly, inventories are held for both convenience and speculative motives, and traders' price expectations are based on all available information. These features of the model make it possible to address a number of questions about how private investment and inventory decisions are affected by oil price uncertainty. In turn, the insights derived have important implications for policies which seek to lessen the vulnerability of the economy to oil disruptions. The authors' principal conclusion is that oil price uncertainty does not in itself interfere with the ability of a market economy to achieve an efficient allocation of resources. Even with the kinds of adjustment cost and speculative behavior included in this model, the authors show that government intervention cannot improve economic welfare if international oil prices are unaffected by changes in import levels. On the other hand, if oil prices do depend on import levels, as well as external events, the authors demonstrate that government intervention is required to minimize negative impacts. 19 refs.

• Research Organization: Resources for the Future, Inc., Washington, DC (USA)
• DOE Contract Number: AC01-80PE70267
• OSTI ID: 5494208
• Report Number(s): DOE/PE/70267-T12; ON: DE85016761
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
294002* -- Energy Planning & Policy-- Petroleum
ECONOMIC IMPACT
ECONOMY
ENERGY SOURCES
FOSSIL FUELS
FUELS
GOVERNMENT POLICIES
IMPORTS
MATHEMATICAL MODELS
PETROLEUM
PRICES
SUPPLY DISRUPTION
TARIFFS