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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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File URL: http://dx.doi.org/10.1086/660124
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File URL: http://dx.doi.org/10.1086/660124
Download Restriction: Access to the online full text or PDF requires a subscription.

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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
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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Find related papers by JEL classification:
  • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
  • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
  • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
  • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
  • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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Cited by:

  1. Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011. "Forecasting the Price of Oil," Staff Working Papers 11-15, Bank of Canada.
  2. Aart Gerritsen, 2016. "How Many Harberger Triangles Does it Take to Fill one Okun Gap?," Working Papers tax-mpg-rps-2016-05, Max Planck Institute for Tax Law and Public Finance.
  3. 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.
  4. Bulow, Jeremy & Klemperer, Paul, 2011. "Price Controls and Consumer Surplus," Research Papers 2086, Stanford University, Graduate School of Business.
  5. Aart Gerritsen, 2016. "Equity and Efficiency in Rationed Labor Markets," Working Papers tax-mpg-rps-2016-04, Max Planck Institute for Tax Law and Public Finance.
  6. Paul J. Gertler & Orie Shelef & Catherine D. Wolfram & Alan Fuchs, 2016. "The Demand for Energy-Using Assets among the World's Rising Middle Classes," American Economic Review, American Economic Association, vol. 106(6), pages 1366-1401, June.
  7. Nancy L. Rose, 2014. "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.
  8. 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.
  9. Bennett, John & Chioveanu, Ioana, 2016. "Pro-Consumer Price Ceilings under Regulatory Uncertainty," MPRA Paper 72161, University Library of Munich, Germany.
  10. Zhongmin Wang and Alan Krupnick, 2015. "A Retrospective Review of Shale Gas Development in the United States: What Led to the Boom?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).

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