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Intertemporal Resource Allocation: Distributive Issues Surrounding Gasoline Price Hikes

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  • Butz, David A

Abstract

This paper shows that many people misinterpreted the gasoline price increases that followed Iraq's invasion of Kuwait in August 1990. Consumers expressed outrage when prices increased immediately even though a production shortfall did not materialize for several weeks. But by withholding output in the invasion's aftermath, arbitragers (including oil companies) reallocated output intertemporally to make more available when it was needed most. The welfare consequences, in general, depend upon demand elasticities and their rate of change, but in this instance consumer surplus would probably have been maximized with a full and immediate price adjustment and oil companies profited from their restraint. Copyright 1991 by Oxford University Press.

Suggested Citation

  • Butz, David A, 1991. "Intertemporal Resource Allocation: Distributive Issues Surrounding Gasoline Price Hikes," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 591-600, July.
  • Handle: RePEc:oup:ecinqu:v:29:y:1991:i:3:p:591-600
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    References listed on IDEAS

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    1. William D. Nordhaus, 1980. "Policy Responses to the Productivity Slowdown," Cowles Foundation Discussion Papers 555, Cowles Foundation for Research in Economics, Yale University.
    2. Zvi Griliches, 1998. "Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 134-156 National Bureau of Economic Research, Inc.
    3. Minasian, Jora R, 1969. "Research and Development, Production Functions, and Rates of Return," American Economic Review, American Economic Association, vol. 59(2), pages 80-85, May.
    4. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
    5. Link, Albert N, 1981. "Basic Research and Productivity Increase in Manufacturing: Additional Evidence," American Economic Review, American Economic Association, vol. 71(5), pages 1111-1112, December.
    6. Wesley M. Cohen & Richard C. Levin & David C. Mowery, 1987. "Firm Size and R&D Intensity: A Re-Examination," NBER Working Papers 2205, National Bureau of Economic Research, Inc.
    7. Stern, Robert M & Baum, Christopher F & Greene, Mark N, 1979. "Evidence on Structural Change in the Demand for Aggregate U.S. Imports and Exports," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 179-192, February.
    8. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-873, December.
    9. Cohen, Wesley M & Levin, Richard C & Mowery, David C, 1987. "Firm Size and R&D Intensity: A Re-examination," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 543-565, June.
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