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The Allocative Cost of Price Ceilings in the U.S. Residential Market for Natural Gas

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  • Lucas W. Davis
  • Lutz Kilian

Abstract

A direct consequence of restricting the price of a good for which secondary markets do not exist is that, in the presence of excess demand, the good will not be allocated to the buyers who value it the most. We demonstrate the empirical importance of this allocative cost for the U.S. residential market for natural gas, which was subject to price ceilings during 1954–89. Using a household-level, discrete-continuous model of natural gas demand, we estimate that the allocative cost in this market averaged $3.6 billion annually, nearly tripling previous estimates of the net welfare loss to U.S. consumers.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 119 (2011)
Issue (Month): 2 ()
Pages: 212 - 241

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Handle: RePEc:ucp:jpolec:doi:10.1086/660124

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Cited by:
  1. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2011. "Forecasting the Price of Oil," CEPR Discussion Papers 8388, C.E.P.R. Discussion Papers.
  2. Gerard, Francois, 2013. "What Changes Energy Consumption, and for How Long? New Evidence from the 2001 Brazilian Electricity Crisis," Discussion Papers dp-13-06, Resources For the Future.
  3. Paul Klemperer & Jeremy Bulow, 2009. "Price Controls and Consumer Surplus," Economics Series Working Papers 2009-W07, University of Oxford, Department of Economics.
  4. Nancy L. Rose, 2013. "Learning from the Past: Insights for the Regulation of Economic Activity," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 1-23 National Bureau of Economic Research, Inc.
  5. David Scrogin & Chen Ling, 2012. "Optimal Pricing of Public Lotteries and Comparison of Competing Mechanisms," Working Papers 2012-05, University of Central Florida, Department of Economics.

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