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Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing

Author

Listed:
  • Sharat Ganapati
  • Joseph S. Shapiro
  • Reed Walker

Abstract

This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are suffcient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We and that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We and heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.

Suggested Citation

  • Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing," Working Papers 16-27, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:16-27
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," Cowles Foundation Discussion Papers 1982R3, Cowles Foundation for Research in Economics, Yale University, revised Apr 2018.
    2. Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2017. "The International Elasticity Puzzle Is Worse Than You Think," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01470696, HAL.
    3. Jacquelyn Pless & Arthur A. van Benthem, 2017. "The Surprising Pass-Through of Solar Subsidies," NBER Working Papers 23260, National Bureau of Economic Research, Inc.
    4. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences," Cowles Foundation Discussion Papers 1982, Cowles Foundation for Research in Economics, Yale University.
    5. Gabriel E. Lade & James Bushnell, 2016. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Center for Agricultural and Rural Development (CARD) Publications 16-wp570, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    6. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," Cowles Foundation Discussion Papers 1982R4, Cowles Foundation for Research in Economics, Yale University, revised Jun 2018.
    7. Don Fullerton & Erich Muehlegger, 2017. "Who Bears the Economic Costs of Environmental Regulations?," CESifo Working Paper Series 6596, CESifo Group Munich.
    8. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," Cowles Foundation Discussion Papers 1982R2, Cowles Foundation for Research in Economics, Yale University, revised Aug 2017.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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