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Do Americans Consume Too Little Natural Gas? An Empirical Test Of Marginal Cost Pricing

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  • Davis, Lucas W.
  • Muehlegger, Erich

Abstract

This paper 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.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 579.

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Date of creation: Apr 2010
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Handle: RePEc:reg:wpaper:579

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Cited by:
  1. Robert w. Hahn & Robert A. Ritz, 2013. "Does the social Cost of Carbon Matter?: An Assessment of U.S. Policy," Cambridge Working Papers in Economics 1346, Faculty of Economics, University of Cambridge.
  2. 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? National Bureau of Economic Research, Inc.
  3. Ian A. Lange & Sarah Polborn, 2012. "Can Lobbying Encourage Abatement? Designing a New Policy Instrument," CESifo Working Paper Series 3760, CESifo Group Munich.
  4. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," NBER Working Papers 17766, National Bureau of Economic Research, Inc.
  5. Magnus Söderberg & Flavio Menezes & Miguel Santolino, 2013. "Regulatory behaviour under threat of court reversal," Working Papers hal-00874878, HAL.

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