energy disruptions interfirm price effects and the aggregate economy in an economy with many imperfect competitors monopolistic competition firms that pass through higher oil prices during a disruption will affect the demand for firms in other industries firms that charge higher prices for their final product will include the effect on their own final product in their private decisions but will exclude the effect on the final products of other firms although a pecuniary externality these actions will reduce society s welfare unlike the case of a perfectly competitive market this situation creates a societal risk that is much wider than an externality in any single market policy interest shifts from one of punishing persian gulf oil producers to one of cushioning an industrialized economy from sudden disruptions caused by political and military conflicts although the value of reducing oil use depends upon a number of unknown parameters with wide distributions a representative numerical example suggests that it may approach 5 per barrel

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

the outlook for us oil dependence abstract oil dependence is defined as a dynamic problem of short and long run market power the potential monopoly power of an oil cartel depends on its market share and the elasticities of oil supply and demand while the economic vulnerability of oil consuming states depends most directly on the quantity of oil imported and the oil cost share of gross domestic product gdp of these factors only the market share of the organization of petroleum exporting countries opec cartel and the rate of growth of world oil demand are clearly different than they were 25 years ago opec still holds the majority of world oil and in the future will regain market share a hypothetical 2 year supply reduction in 2005 2006 similar in size to those of 1973 1974 or 1979 1980 illustrates the potential benefits to opec and harm to the us economy of a future oil price shock opec s revenues are estimated to increase by roughly 0 7 trillion while the us economy loses about 0 5 trillion strategic petroleum reserves seem ineffective against a determined multi year supply curtailment increasing the market s price responsiveness by improving the technologies of oil supply and oil demand can greatly reduce the costs of oil dependence each element of this interpretation of the oil dependence problem is well supported by previous studies this paper s contribution is to unite these elements into a coherent explanation and to point out the enormously important implications for energy policy

supply chain disruption management and evolutionarily stable strategies of retailers in the quantity setting duopoly situation with homogeneous goods this paper develops an indirect evolutionary game model with two vertically integrated channels to study evolutionarily stable strategies ess of retailers in the quantity setting duopoly situation with homogeneous goods and analyzes the effects of the demand and raw material supply disruptions on the retailers strategies every channel consists of one manufacturer and many a sufficiently large number of retailers that sell products in different markets by adopting two pure marketing strategies profit maximization and revenue maximization we find that revenue maximization strategy may prevail and profit maximization strategy may become extinct two strategies may coexist i e all retailers in one channel will choose profit maximization strategy and all retailers in the other will choose revenue maximization strategy the ess of retailers depends on the relative size of the market scale and unit cost the supply chain disruptions affect the ess of retailers we also introduce a recovery model of the supply chain under disruptions and illustrate the effect of disruptions on the ess and on the average profits of channels in a market using a numerical simulation

energy security policies in eu 25 the expected cost of oil supply disruptions a framework for analyzing the impact on the expected cost of oil disruption by energy policies in eu 25 is developed the framework takes into account how energy policies affect the oil market the expected oil price increase and the disruption costs opec s strategic behaviour is modelled as a dominant firm and the model includes price interdependence between different energy commodities to better estimate the cost of an oil disruption it is found that substituting pellets for oil in households and using imported sugar cane ethanol are cost efficient policies if greenhouse gas benefits are included domestically produced wheat ethanol is not found to be cost efficient even if both the expected cost of oil disruption and greenhouse gas benefits are included the same also holds for hybrid vehicles the gross expected economic gain of the policies is found to be between 9 and 22 bbl oil replaced

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

moral self licencing and social dilemmas an experimental analysis from a taking game in madagascar this article explores whether previous good deeds may license antisocial behaviour such as appropriating a social surplus for private benefits in a developing country context namely madagascar we design a two step framed experiment with one control treatment a neutral task and three test treatments tasks enabling subjects to earn moral credits in three different ways followed by a taking game in which subjects are given the opportunity to take an amount from a fund allocated to their university on average we find that participants in the three licencing conditions appropriate more than those in the control group and that further differences emerge according to the way the moral credits have been earned

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

identifying the oil price macroeconomy relationship an empirical mode decomposition analysis of us data this paper employs the empirical mode decomposition emd method to filter cyclical components of us quarterly gross domestic product gdp and quarterly average oil price west texas intermediate wti the method is adaptive and applicable to non linear and non stationary data a correlation analysis of the resulting components is performed and examined for insights into the relationship between oil and the economy several components of this relationship are identified however the principal one is that the medium run component of the oil price has a negative relationship with the main cyclical component of the gdp in addition weak correlations suggesting a lagging demand driven component and a long run component of the relationship were also identified comparisons of these findings with significant oil supply disruption and recession dates were supportive the study identifies a number of lessons applicable to recent oil market events including the eventuality of persistent oil price and economic decline following a long oil price run up in addition it was found that oil market related exogenous events are associated with short to medium run price implications regardless of whether they lead to actual supply losses

energy security externalities and policies abstract in this paper we review conceptual arguments and empirical evidence related to two potential sources of market failure involving energy security in doing so we consider several questions involving the distinction between externality and market inefficiency and the distinction between market failures that are amenable or not amenable to correction given our current understanding of the workings of an economy several conclusions follow from our analysis regarding the potential sources of market failure and possible remedies the problem of excess wealth transfer from exporter market power may be an issue but current knowledge of oil market behaviour is too weak to support a strong conclusion other supposed costs of oil import dependence also are not well grounded including externalities related to the vulnerability of the economy to energy price shocks

this is what happened to the oil price macroeconomy relationship reply abstract james hamilton argues that oil price changes are still important for the macroeconomy and that using a filter which screens out drops and measures increases relative to a reference level wellrepresents the effects of price changes when they are choppy while this measure outperforms the oil price transformations considered in my paper much of its predictive power is coming from the pre 1986 and pre 1973 part of the sample with less than 10 years of choppy data finding the best oil price transformation will likely require analysis with cross sectional components ruling out effects from oil price decreases is also probably counterproductive to uncovering structure

the effect of forced choice on choice abstract whereas most academic and industry studies of consumer preferences and decision making involve forced choice i e participants are told to choose one of the presented product or service alternatives buyers usually also have the option not to select any alternative an implicit assumption in the experimental practice of forcing choice is that the no choice option draws proportionately from the various available alternatives such that the qualitative conclusions are unaffected however the authors propose that the no choice option competes most directly with alternatives that buyers tend to select when they are uncertain about their preferences building on this general proposition the authors show that the introduction of the no choice option strengthens the attraction effect weakens the compromise effect and decreases the relative share of an option that is average on all dimensions they also examine the mechanisms underlying the impact of having the option not to choose and the condi

on capturing oil rents with a national excise tax this paper argues that since the supply of oil in the ground is inelastic the incidence of a sales tax on oil maintained forever at a fixed rate would fall entirely on the oil suppliers in the world economy however the elasticity of supply of oil to a single country depends on that country s imports as a share of world output and on the elasticity of demand for that country the paper calculates optimal tax rates for a country as a function of these variables and estimates optimal oil tax rates for the u s for some oecd countries separately and for the u s plus the oecd collectively current u s tax rates are shown to be far below optimal values

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

the optimal tariff production lags and time consistency the optimal tariff for a large country equals the reciprocal of the foreign export elasticity of supply however if production decisions occur before consumption decisions the ex ante optimal tariff is not time consistent because the ex post elasticity is less than the ex ante elasticity we show all countries are worse off if the large country cannot precommit to its ex ante optimal tariff and that all countries can gain if the large country taxes domestic production of importables

oil supply shocks and the u s economy an estimated dsge model abstract we develop and use a medium sized dsge model of the u s economy to evaluate how u s real gdp responds to oil price movements that originate from global oil supply shocks the core of the model is a standard macroeconomic dsge framework that includes nominal and real frictions the model includes oil as an input in multiple domestic sectors consumption intermediate goods and transportation services we include a domestic oil production sector for the united states to reflect the recent development in shale oil technology the model also captures international trade in goods and oil the model parameters are set through a combination of calibration and bayesian estimation using quarterly data for 1991 through 2015 baseline estimation of the model finds the elasticity of u s real gdp with respect to an oil price shock of 0 015 which is among the less elastic estimates in the literature using the model to conduct counterfactual analysis we find that decreasing steady state u s oil consumption substantially reduces the response of real gdp to oil prices increasing u s domestic oil production only modestly reduces the response of real gdp to oil prices

u s trade policies in a changing world economy this collection of original essays focuses on issues of international trade and trade policy in a world that is undergoing structural adaptation and in the face of a serious increase in the us trade deficit they bring a new consolidation of analytical perspective to a wide variety of current trade policy issues in their overview chapter alan v deardorff and robert m stern discuss developments in trade and protectionism review the case for free trade and address the arguments in favor of trade intervention rudiger dornbusch and jeffrey frankel analyze the macroeconomic setting in which changes have been made in us tariffs and ntbs stephen p magee and leslie young develop a model of endogenous protection and use it to search for microeconomic and macroeconomic variables that may help to explain changes in tariff and nontariff protection in the us since 1900 paul krugman takes up the question of identifying strategic sectors and the extent to which international competition and national government policies may affect the returns to such sectors under conditions of imperfect competition or when externalities are present avinash dixit analyzes the responses that the us might make to other countries trade policies in terms of how these policies affect us real national income and national security he concludes that the us could use strategic advance responses to alter other countries trade policies in a mutually beneficial way richard n cooper evaluates trade policy as foreign policy by looking at changes through three periods of us history t n srinivasan scrutinizes the national defense argument for government intervention in foreign trade john h jackson in discussing alternative negotiation approaches for the conduct of us trade policies observes that the pursuit of multilateralism may be frustrating and that what may be needed instead is a minilateral approach to trade liberalization in conclusion w max corden offers a package of rules that he believes may be both desirable and possible for the international trading system to attain robert m stern is professor of economics at the university of michigan and director of the institute of public policy studies he is coauthor with allan v deardorff of the michigan model of world production and trade mit press 1985

disadvantageous oil tariffs and dynamic consistency a large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs and may find itself worse off than if it were unable to impose tariffs at all futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency copyright 1990 by american economic association

new estimates of the security costs of u s oil consumption abstract in recent years the united states has become much more self reliant in producing oil and a newer economics literature suggests that oil demand may be more elastic and u s gdp may be less sensitive to world oil price shocks than was previously estimated these developments suggest somewhat lower security costs may be associated with u s oil consumption this analysis provides updated estimates of the security premiums for u s consumption of imported oil u s consumption of domestically produced oil and the substitution of imported oil for domestically produced oil estimates of the expected security costs of u s oil consumption are provided over the time horizon from 2015 to 2040 while taking into account projected world oil market conditions the probabilities and sizes of world oil supply disruptions the response of world oil prices to those supply disruptions and the response of u s real gdp to those oil price shocks the estimated oil security premiums suggest that u s oil security has become less of a policy concern

three laws of energy transitions the paper formulates and explores a hypothesis on three general energy transition laws the law of stable long term energy costs to income ratio the law of improving energy quality and the law of growing energy productivity these laws are essential for shaping long term projections and checking for their consistency all three are rooted in amazingly stable in time and universal across countries energy costs to income ratios limited energy purchasing power sets up thresholds which if exceeded bring asymmetry to energy demand to price elasticity the author believes that the theoretical postulate on the substantial substitution among production factors which is used in the production functions theory may be incorrect in reality innovations mainly lead to the substitution of a low quality production factor with the same yet of a better quality improving energy quality with stable costs to income ratio is accompanied by growing energy productivity energy costs to income thresholds are indicators allowing for better projections of oil prices

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

evaluating u s oil security and import reliance abstract we examine the literature that considers the consequences of u s reliance on imported oil we take an approach that covers many ideas about the costs arising from u s reliance on imported oil and we identify which of those ideas have broad support in the economics literature and which ideas have only limited support we also quantify the costs of u s reliance on imported oil using two approaches one is fairly narrow conforms to the economics view of externalities and yields small cost estimates the other is relatively expansive is favored by some policy analysts and yields much larger cost estimates we estimate these costs as expected u s economic losses over a time horizon from 2010 through 2035 while taking into account world oil market conditions market power probable oil supply disruptions and the oil market response to those supply disruptions

assessing the u s oil security premium abstract world oil supply disruptions lead to u s economic losses increased oil consumption increases the vulnerability of the economy to oil supply disruptions but it matters where the additional oil is produced increased production from stable producers can dampen future oil price shocks whereas increased production from unstable producers can exacerbate future oil price shocks because oil is fungible u s pricing and import policies can differentiate only between domestic and imported oil rather than between stable and unstable sources the economic losses associated with oil supply disruptions gdp losses and some transfers abroad are externalities that can be quantified as oil security premiums we estimate these premiums by taking into account projected world oil market conditions probable oil supply disruptions the market response to oil supply disruptions and the resulting u s economic losses

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model