economic analysis of coal price electricity price adjustment in china based on the cge model in recent years coal price has risen rapidly which has also brought a sharp increase in the expenditures of thermal power plants in china meantime the power production price and power retail price have not been adjusted accordingly and a large number of thermal power plants have incurred losses the power industry is a key industry in the national economy as such a thorough analysis and evaluation of the economic influence of the electricity price should be conducted before electricity price adjustment is carried out this paper analyses the influence of coal price adjustment on the electric power industry and the influence of electricity price adjustment on the macroeconomy in china based on computable general equilibrium models the conclusions are as follows 1 a coal price increase causes a rise in the cost of the electric power industry but the influence gradually descends with increase in coal price and 2 an electricity price increase has an adverse influence on the total output gross domestic product gdp and the consumer price index cpi electricity price increases have a contractionary effect on economic development and consequently electricity price policy making must consequently consider all factors to minimize their adverse influence

impact of oil prices economic diversification policies and energy conservation programs on the electricity and water demands in kuwait abstract this paper describes the influences of oil revenue and government s policies toward economic developments and energy efficiency on the electricity and water demands a kuwait specific electricity and water demand model was developed based on historic data of oil income gross domestic product gdp population and electric load and water demand over the past twelve years 1998 2010 moreover the model took into account the future mega projects annual new connected loads and expected application of energy conservation programs it was run under six circumstances representing the combinations of three oil income scenarios and two government action policies toward economic diversification and energy conservation the first government policy is the status quo with respect to economic diversification and applying energy conservation programs the second policy scenario is the proactive strategy of raising the production of the non oil sector revenue and enforcing legislations toward energy demand side management and conservation in the upcoming 20 years the average rates of change of the electric load and water demand increase are 0 13 gw and 3 0 migd respectively per us dollar oil price increase moreover through proactive policy the rates of average load and water demand decrease are 0 13 gw and 2 9 migd per year respectively

competitive nonlinear tariffs abstract this paper generalizes the study of nonlinear tariffs i e those depending nonlinearly on the quantity purchased to the case of a symmetric oligopoly competitive equilibria and the corresponding tariffs are analyzed in a cournot framework various equilibria are obtained which depend both upon the number of competing suppliers and the choice of market parameters used to characterize the competitors strategies buyers are classified by type each selecting an optimal consumption level in response to the prevailing tariff the phenomena of buyer self selection found in monopoly nonlinear pricing and the scaling of equilibrium demand elasticity found in cournot models both appear in the results

research note quantity discounts in differentiated consumer product markets in this paper we extend the standard hotelling model of product differentiation to incorporate a second dimension of consumer heterogeneity that relates to the quantity of the product consumers wish to buy this extension allows us to derive optimal nonlinear pricing rules chosen by competing sellers when offering differentiated products in the marketplace it also permits us to assess whether sellers find it optimal to offer quantity discounts in such a setting and the implications of such discounts on their profitability we find that offering quantity discounts corresponds indeed to equilibrium behavior the extent of discounting declines the less differentiated the products surprisingly when sellers offer to consumers a choice between two different sized packages their profits are at most as high as when such a choice is unavailable moreover when utilizing nonlinear pricing rules is not feasible the profits of the sellers actually decline when they offer consumers a choice between different sized packages a limited empirical investigation supports the comparative statics we derive in our theoretical model

the growth of interorganizational systems in the presence of network externalities we develop a model of network growth in the presence of network externalities for the case where a buyer initiates an interorganizational system with its suppliers in our two stage model suppliers joining the network in the first stage can gain economic benefit from increased market share or higher price for the primary product suppliers encounter negative externalities since the economic benefit accruing to participating suppliers is less for increasingly larger networks in the first stage the buyer may experience initial supplier adoption of the network followed by a stalling problem due to negative externalities in order to overcome this stalling problem the buyer may find it optimal to subsidize some suppliers costs to join the network in the second stage we characterize the buyer s optimal second stage subsidy policy and show the conditions under which the buyer will find it optimal to offer a subsidy if the suppliers have some positive ex ante expectation of a second stage subsidy the growth of the network will be retarded in the first stage resulting in suboptimal profits for the buyer

sale or lease durable goods monopoly with network effects this paper studies the pricing problem of a durable goods monopolist it finds that contrary to the existing literature profits from selling durable goods might be higher than from leasing when the products exhibit network effects under the influence of network effects there exist multiple self fulfilling equilibria that would sustain different network sizes at the same price by using the assumption that consumers are cautious about network growth we find that consumption externalities among heterogeneous groups of consumers generate a discontinuous demand function which requires a lessor to offer a low price if she wants to reach the mass market in contrast a seller enjoys a relative advantage in that she can build a customer base by setting a lower initial price and raise the price later in the mass market our finding that selling can be more profitable than leasing holds when consumers are more cautious about the prospect of the product s success which might be the case if for example the technology or manufacturer is relatively unknown

economic and environmental impacts of electricity subsidy reform in kuwait a general equilibrium analysis abstract this paper examined economic and environmental impacts of reducing electricity subsidy in kuwait a social accounting matrix sam was constructed together with energy consumption with co2 emission were compiled and then calibrated with a computable general equilibrium cge model a simulation experiment was conducted by applying a 30 reduction of subsidy to the electricity sector this policy shock was applied to the model in two scenarios in scenario 1 the subsidy reduction was applied and results were compared with the baseline scenario given in the sam this yielded adverse economic effects on most endogenous variables but positive environmental benefits in terms of co2 emission reduction electricity tariff increased by three fold from 2 to 6 fils 0 7 cents to 2 cents per kwh gdp fell by 0 5 and aggregate household welfare declined by 0 8 in scenario 2 subsidy reduction was accompanied with cash transfers to compensate user losses the subsidy deducted from the electricity sector was allocated to users according to their share in base year total expenditure on electricity the results indicated that such transfers would reduce the adverse economic effects co2 emissions fell by 0 5 the gdp and household welfare effects were reversed rising by 0 4 and 0 1 respectively

estimates of energy subsidies in china and impact of energy subsidy reform abstract for a transitional economy such as china some energy subsidies are reasonable and sometimes even necessary for achieving social goals however with rising energy prices and environmental concerns we see conflicts emerging between energy subsidies energy demand supply fundamentals and climate change considerations energy subsidies have important implications for sustainable development through their effects on energy use efficiency and the choice of fuel source this paper applies the price gap approach to estimate china s energy subsidies results indicate that china s energy subsidies amounted to cny 356 73 billion in 2007 equivalent to 1 43 of gdp subsidies for oil products consumption are the largest followed by subsidies for the electricity and coal sectors furthermore a cge model is used to analyze the economic impacts of energy subsidy reforms our findings show that removing energy subsidies will result in a significant fall in energy demand and emissions but will have negative impacts on macroeconomic variables we conclude that offsetting policies could be adopted such that certain shares of these subsidies are reallocated to support other sustainable development measures which could lead to reducing energy intensity and favoring the environment

nonlinear pricing in markets with interdependent demand this paper provides a mathematical framework for modeling demand and determining optimal price schedules in markets which have demand externalities and can sustain nonlinear pricing these fundamental economic concepts appear in the marketplace in the form of mutual buyers benefits and quantity discounts the theory addressing these aspects is relevant to a wide variety of goods and services examples include tariffs for electronic communications services pricing of franchises and royalty fees for copyrighted material and patents this paper builds on several previous results from microeconomics and extends nonlinear pricing to markets with demand externalities the implications of this price structure are compared to results obtained for flat rates and two part tariffs in a similar context a case study is described in which the results were applied to planning the startup of a new electronic communications service

on the measurement and trend of inequality reply john formby terry seaks and w smith hereafter fss argue that the p gini coefficient is affected by the arbitrary choice of the age grouping to a degree which brings the validity of the age related measure into question fss 1989 p 2 more pointedly with a sufficiently narrow age partition the p curve can always be driven to the l curve convergence of the p gini to a nonzero estimate does not occur p 4 these conclusions i believe result from a misapplication of gastwirth s theorem on disaggregation and a failure to observe statistical rules relating to sample size and sampling error i will show that when these rules are observed the value of the p gini does not converge to zero but properly reflects the relative importance of the nonlife cycle factors affecting the distribution when calculating the traditional l gini the more disaggregation the better the number and accuracy of the sample points are the only consideration since all are thrown into one conceptual box and compared in terms of income size but if we try to identify the factors which account for income inequality in terms of age versus nonage related factors we are setting up two conceptual boxes the age gini and the p gini and we are no longer simply dealing with a gastwirth type problem statistical considerations come into play for example we must have a sufficient number of sample points in each conceptual box in order to give a reliable estimate of the importance of each factor the key allocating device which i employ is the age gini derived from the average age income profile the age gini shows the amount of inequality that would exist if all nonage related sources of inequality were eliminated when calculating this coefficient the means of the age groups are used in order to wash out all random and nonagerelated influences but this separating device works well only if the means are based on large samples otherwise sampling errors create spurious variation and impart an upward bias to the value of the age gini fss p 4 drive the age gini value up to the l gini by increasing the number of agegroups until they equal the number in the sample since the means of the age groups are now based on samples of one they become as erratic as the individual incomes and impart the maximum upward bias to the age gini it is true that the age income profile and the age gini are conceptually refined by using smaller age intervals but unless sample size is large compared to the number of age intervals the gains from conceptual purification will be more than offset by the greater sampling errors of the age means this kind of limitation is shared by many other statistical measures which do not thereby lose their validity or usefulness under what conditions will the true or limiting value of the p gini emerge fss in their footnote 3 state that there is no limiting value other than zero let us test this claim assume we have a scatter diagram of income y and age x and wish to show average income in relation to age we start with a finite number of age groups and plot their mean incomes on the diagram by continuously reducing the age interval and increasing sample size we end up with a curve passing through the true means of infinitely small age intervals this defines the average age income profile since for each person we have data on income and age we can with this curve or an approximation of it calculate the age gini and l gini without grouping for age or income the age income curve allows us to determine the mean income u at any given age and for all persons department of economics portland state university p o box 751 portland or 97207

indirect network externality effects on product attributes indirect network externality ine effect exists when the utility of a product increases with the greater availability of compatible complementary products we demonstrate that ine effects can vary by product attributes with externality sensitive attributes gaining more from increased availability of complementary products than other attributes past research has assumed that the benefit of increased availability of complementary products e g software accrues to theentireproduct e g hardware utilizing data covering a period from 1985 to 1995 on compact disc player prices attributes and cd titles releases and using a hedonic price approach we find significant positive interactions between cd title availability and two attributes of the cd player namely changer capacity and its oversampling rate in addition to ine attribute interactions increased availability of cd titles is found to have a significant positive impact on the overall price of cd players which is consistent with past research collectively these effects of ine have helped reduce the yearly decline in the price of cd players the finding that ine effects differentially affect different attributes can help managers in decisions such as pricing timing of introduction and changing the levels of ine sensitive attributes

congestion and network externalities in the short run pricing of information system services transfer pricing provides management with an efficient tool for coordinating the use of information system services in practice these services if they are charged out to end users are priced via an allocation of historical costs based on individual usage or are assigned a price based on the fair market value of outside alternatives both approaches encourage suboptimal usage of information systems resources they ignore three constituents of optimal transfer prices 1 the reaction of other users to any change in a given user s consumption of service 2 the technical response to additional use of an information system service in the form of congestion and network externalities and 3 end user preferences for the information system service together these influences on demand contribute to an externality two types of externalities are significant in information systems congestion externalities decrease and network externalities increase the utility of services this research provides a complete model for computing optimal transfer price which corrects several existing problems in information system service valuation when full absorption cost allocations contain significant fixed precommitted or sunk cost components it is not possible to balance the budget direct costing improves on full absorption costing but misspecifies costs when demand is nonlinear to balance the budget with a minimum of disutility to end users management must resort to second best pricing inefficiency arises from two sources when externalities are ignored in transfer pricing end users cannot plan service usage and thus encounter unanticipated congestion which lowers morale and efficiency and increases costly expediting where congestion effects are highly nonlinear congestion may effectively shut down the system on the other hand incorrect transfer prices can motivate usage too low to take advantage of network benefits end users may confuse externality effects and intrinsic value of an information system service in these cases the price and performance of outside alternatives exert a complex and subtle influence on use and pricing of services where there exist identical outside and inside processing alternatives and transfer pricing does not reflect this there is a significant tendency to overprice and underutilize internal services in this case there may be a tendency to outsource when processing should be kept in house future markets for information systems will favor technologies which exhibit strong network externalities and pricing of these technologies will become increasingly complex because of the interrelationship of hardware software and data originated externalities the models provided in this research will allow management to take advantage of these opportunities

economic and welfare influences of an energy excise tax in jiangsu province of china a computable general equilibrium approach abstract in recent years although china s energy intensity has gradually decreased the total consumption of energy commodities has increased sharply levying an excise tax on energy commodities is one of the keys to control energy consumption this paper constructed a computable general equilibrium model to simulate levying an energy excise tax in jiangsu province which is one of china s strong economic provinces with lower endowments of energy resources the results show that the energy excise tax is beneficial for energy saving while levying energy will cause economic and welfare declines when at a level tax rate of 5 10 and 15 the loss of gdp will reach 0 27 0 66 and 1 13 respectively and the incomes of inhabitants and enterprises alike will decrease when the energy tax revenue used to compensate for the welfare losses suffered by inhabitants or enterprises there is a double dividend effect energy saving and increasing income moreover the simulation indicated that a 5 improvement of energy efficiency brings about a backfire phenomenon with an increase of 142 in energy consumption however when considering the cost of energy efficiency improvements the rebound effect will be significantly decreased policy suggestions are further recommended to help improve the energy policy in regard to reducing energy consumption

measuring the welfare effects of reducing a subsidy on a commodity using micro models an application to kuwait s residential demand for electricity abstract this paper provides a conceptual and empirical approach for evaluating the direct benefits and costs that are associated with reforming the price of a subsidized commodity using a micro model the welfare analysis is based on two alternative scenarios a hypothetical percentage increase in the price of the commodity and a hypothetical percentage decrease in the amount of subsidy the latter is considered to be a simultaneous problem in which the exact price of the commodity that reduces consumption and subsequently the subsidy to the specific target level needs to be determined first as a case study the paper utilizes the most recent household expenditure survey in the state of kuwait to estimate residential electricity demand for different household groups i e low middle and high income and employs a partial equilibrium model to measure the welfare implications that may result from a reduction in the electricity subsidy rates the empirical findings show that a small increase in the price of electricity would reduce annual consumption by 4741 million kwh and annual subsidy by us 734 million the results also show that the loss in consumers welfare is approximately us 145 million while the financial and environmental benefits to the society ranges between us 658 million and us 889 million the magnitude of these welfare gains suggests that electricity price reforms combined with a rebate scheme to compensate households for their welfare loss offsetting any political resistance to reform is a win win situation

the impact of electricity market liberalization in turkey free consumer and distributional monopoly cases abstract electricity sector has grown substantially in turkey since the early 1960s as a result of rapid industrialization and urbanization the vertically integrated state owned company had a legally established monopoly on the generation transmission and distribution of electricity in turkey with the support and encouragement of international organizations like the world bank turkey has initiated a comprehensive program to liberalize and privatize the electricity market in 2001 the liberalization of the electricity market in turkey started in the distribution side of the market the distribution network was divided into 21 distribution regions and in each of these separate initially state owned distribution companies have been authorized to distribute and sell electricity the plan envisaged to complete privatization of all distribution companies until the end of 2006 this study compares the welfare implication of privatization of the distribution networks by comparing two extreme cases a pure regional distributional monopoly case and a representative pure free consumer case with a benchmark case of administered price regulation for this purpose we develop a simulation model of the turkish electricity system and use the data on generation and distribution costs our simulation analysis shows that substantial welfare losses occur if the distributional companies behave as regional monopolists our findings reiterate the importance of regulation and market design

vertical strategic interaction implications for channel pricing strategy this paper examines two strategic pricing decisions within channels using foresight i e price leadership and considering category implications i e product line pricing are price leadership and product line pricing always the best pricing strategies for a channel member if not when does this occur and why by investigating these questions we address some major concerns of both marketing practitioners and scholars interested in channel management issues in addition this study provides an indepth discussion on why previous analytic studies produced answers to these questions that depend upon the choice of the form of demand functions as such this study should significantly resolve the debate among analytic marketing modelers about the right demand specification at the core of our discussion lies the concept of vertical strategic interaction which is defined in terms of the direction of a channel member s reaction to the actions of its channel partner within a given demand structure specifically if a channel member s best reaction is to reduce its margin when its channel partner increases its margin the type of vertical strategic interaction is referred to as vertical strategic substitutability vss if the best reaction is to increase the margin the environment is referred to as vertical strategic complementarity vsc if the best reaction is no margin change it is referred to as vertical strategic independence vsi using a game theoretic approach we demonstrate that these three types of vertical strategic interactions represent a key driving force for optimal decisions on channel price leadership and product line pricing our investigation involves mathematical analyses of an industry model composed of two manufacturers selling competing products both carried by two competing retailers as such the model allows for retailer product line pricing as well as manufacturer and retailer level competition in addition this general model can be used to analyze three more restrictive industry settings often found in the channels literature i e a bilateral monopoly jeuland and shugan jeuland abel steven m shugan 1983 managing channel profits marketing sci 2summer 239 72 two competing manufacturers selling through competing franchised retailers mcguire and staelin mcguire timothy w richard staelin 1983 an industry equilibrium analysis of downstream vertical integration marketing sci 2spring 161 92 and two competing manufacturers selling through one common retailer using product line pricing choi choi s chan 1991 price competition in a channel structure with a common retailer marketing sci 10fall 271 96 unlike many other channel studies most of our analyses are performed without assuming particular functional forms of demand curves thus this paper provides greater assurance that the insights from this stream of research are broadly applicable not only across industry structures but also across demand conditions the paper starts out by defining three different rules for how prices are set the manufacturer uses foresight the retailer uses foresight and neither channel member uses foresight we then show a one to one mapping between the type of vertical strategic interaction and the optimality of channel price leadership specifically a channel member finds it profitable to be a price leader for vss but prefers to be a follower for vsc for vsi channel members are indifferent to the channel price leadership issue as it has no effect on channel member profits we also show that there exist conditions under which a retailer might see a reduction in profits when it changes its policy from non product line pricing to product line pricing such conditions arise when the retailer is not a price leader and the environment is characterized by vss or vsc at a more general level this study suggests not only the value but also the cost to a firm for using superior knowledge i e foresight and or product line pricing in making strategic marketing decisions in this way ignorance can be bliss we also explore the link between demand characteristics and the three types of vertical strategic interaction we show that the type of vertical strategic interaction present in a given environment is closely related with the convexity of the demand curve and the level of demand for a given price interestingly we find that linearity of demand is not a necessary condition for any of the three types of vertical strategic demand function consequently in evaluating the robustness of analytic analyses it may be more important to determine the type of vertical strategic interaction assumed instead of whether the demand is linear or nonlinear finally our results are limited to situations where the channels are not coordinated and the retailer s precommitment to particular pricing policy and decision is credible although such situations still capture a significant portion of reality we acknowledge that the insights from this study might not be applicable in all situations

nonlinear pricing of telecommunications with call and network externalities abstract this paper investigates how call and network externalities affect a monopolist s optimal nonlinear tariff in a two way telecommunication service market where consumers valuations for outgoing and incoming calls are positively correlated and the firm is not allowed to charge incoming calls it is shown that in contrast to the traditional efficiency on the top result all subscribers including those with the highest willingness to pay make suboptimal quantities of calls in the equilibrium the presence of call externalities may result in the existence of no call making subscribers in equilibrium also the firm may have incentives to sell the service below costs to some low valuation consumers in order to take advantage of the effect of network externalities

energy subsidy reform for growth and equity in egypt the approach matters abstract phasing out energy subsidies is high on the agenda of policymakers in several middle eastern and north african countries the impact of such reform can vary widely depending on the country and policy this paper contributes to the existing literature by examining the phasing out of energy subsidies in egypt under alternative economic scenarios in particular we consider egypt s short and long term economic adjustment under different assumptions on labor market flexibility spending options of subsidy savings and alternative social protection measures results from economy wide model simulations suggest that energy subsidy cuts may hamper economic growth in the short term but depending on the policy measure will improve growth perspectives and household welfare in the longer term yet findings also point to likely adverse impacts of the reform on household consumption in the short and longer run to counteract such negative impacts targeted social protection measures should be continued and scaled up in parallel with the phasing out of energy subsidies

energy conservation in electricity generation a case study of the electricity and water industry in kuwait this paper has examined possibilities of energy conservation in the generation of electricity and water in kuwait this has been done through analysing the underlying production structure by employing a translog flexible cost function and using series data the results show that in the absence of changes in factor prices fuel intensity of electricity and water is expected to increase with increase in output furthermore capital and fuel are found to be substitutes overall the evidence suggests that energy conservation can be achieved by using fuel prices as instruments this is likely to induce demand for new capital and hence promote productivity gains

a cooperative game theory model of quantity discounts quantity discounts offered by a monopolist are considered in the context of a bargaining problem in which the buyer and the seller negotiate over the order quantity and the average unit price all units and incremental quantity discounts that permit transaction at a negotiated outcome are described the effects of risk sensitivity and bargaining power on quantity discounts are discussed for alternative bargaining models

utility subsidy reform in abu dhabi a review and a computable general equilibrium analysis abstract electricity and water consumption in abu dhabi has increased substantially in recent years along with rapid economic and population growth as one of the oil producing economies located in arid regions abu dhabi s electricity and water are produced predominantly with fossil fuel based power water co generation which generate carbon emissions the consumption of electricity and water is heavily subsidized to support industrial growth lower cost of living and distribute state wealth to the population the low utility prices however may have contributed to high per capita carbon emissions for the emirate this paper reviews critical literature on energy subsidy policy for oil exporting economies we then examine the economic and environmental effects of water and electricity subsidy reduction in abu dhabi using a computable general equilibrium analysis the result shows that utility subsidy reduction alone increases gross domestic product gdp of the emirate through expanding the high value added service sector and reduces carbon emissions with decreasing carbon intensive industrial and utility productions meanwhile private consumption declines with decreasing wage electricity subsidy reduction in general has greater economic and environmental effects than water subsidy reduction the positive economic and environmental gains may incentivize utility subsidy reform in the long run when the negative wage effect is mitigated

higher prices for larger quantities nonmonotonic price quantity relations in b2b markets we study a microprocessor company selling short life cycle products to a set of buyers that includes large consumer electronic goods manufacturers the seller has a limited capacity for each product and negotiates with each buyer for the price our analysis of their sales data reveals that larger purchases do not always result in bigger discounts instead the discount curve is like an n while existing theories cannot explain this nonmonotonic pattern we develop an analytical model and show that the nonmonotonicity is rooted in how sellers value capacity when negotiating with a buyer large buyers accelerate the selling process and small buyers are helpful in consuming the residual capacity however satisfying midsized buyers may be costly because supplying these buyers can make it difficult to utilize the remaining capacity which is often too much for small buyers but not enough for large buyers we briefly discuss the implications for capacity rationing and posted pricing as well as potential appl

screening contracts in the presence of positive network effects abstract based on the critical assumption of complementarity this paper builds a general model to describe and solve the screening problem faced by a monopolist seller of a network good by applying strict monotone comparative statics we demonstrate that the joint presence of asymmetric information and positive network effects leads to a strict downward distortion from the welfare maximizing allocation for all consumers we also show that the equilibrium allocation is an increasing function of network effect intensity

new product pricing in quality sensitive markets this paper considers the problem of pricing a new product in a market having competing products of different qualities and market penetration levels as measured by the cumulative number of units sold each customer type selects his optimal product based on maximizing consumer surplus pricing policies for a new product are determined for the seller based on cumulative profit maximization without discounting an example is solved in detail for two demand function forms

diversification effects of energy subsidy reform in oil exporters illustrations from kuwait abstract for oil exporters energy subsidy reform and economic diversification are critical policy responses to recent fundamental changes in the global oil market and oil price declines yet the relationship between them is little understood this article investigates linkages between energy subsidy reform and accelerating economic diversification away from hydrocarbons in a low oil price environment using illustrations from kuwait it employs an economy wide general equilibrium model with oligopolistic industrial structure the first of its kind for an economy in the middle east and north africa that embodies unique elements of the country s economic structure oil dependence public sector dominance subsidies sovereign wealth funds industrial collusive pricing behaviour and guest workers the article argues that contrary to common popular discourse kuwait s economy has a diversified economic base but this base fails to diversify export or government revenue needed for economic sustainability results show that weak economic diversification in oil exporters with a similar economic structure is not primarily due to dutch disease as dominant in the literature but to economic constraints and distortions that impair structural change and exacerbate overdependence on hydrocarbons labour and competition reforms relax some constraints achieving large efficiency gains that extend economy wide and can expand non energy tradable sectors the analysis has important policy implications first the potential role of pricing regulation in small economies in moderating economic impacts of negative oil shocks second in oil economies characterized by pervasive oligopolies microeconomic reform can be a channel to achieve efficiency and better diversification effects of subsidy reform

kuwait s energy subsidy reduction examining economic and co2 emission effects with or without compensation abstract this paper examined economy wide impacts of reducing energy subsidy in kuwait a social accounting matrix sam was constructed and a computable general equilibrium cge model was developed the cge model was used to simulate separate and combined effects of a 25 reduction of subsidy to three energy products natural gas oil and electricity this policy shock was applied to the model in two scenarios in each round the subsidy reductions were applied to each energy product separately in turn and then finally simultaneously to all energy products in the first scenario subsidy reductions were applied and results were compared with the baseline scenario given in the sam this yielded adverse effects across a range of endogenous variables it leads to large energy price increases as high as 255 for electricity gross domestic product gdp marginally declined by 0 28 in scenario 2 the subsidy reduction was accompanied with cash transfers to energy users a compensation for welfare loss the amount of transfer was equivalent to the sum of the amount of subsidy reductions the results indicated that such transfers would reduce the adverse effects of the policy reform the effects on gdp was reversed it rose by 1 01 the price effect was slightly lower electricity price rose by 245 finally sensitivity of the model results was examined by varying the elasticity of the substitution of composite energy and capital in production greater possibility of substitution seems to cause subsidy reform to have much larger positive or smaller adverse economy wide effects the simulation experiments suggest that subsidy reform would need to be accompanied by demand side stimulus or supply side initiatives to encourage energy conservation