Douglas R. Bohi

On the macroeconomic effects of energy price shocks

Abstract Energy price shocks are widely believed to have severe macroeconomic effects, although this conclusion is far from unanimous in the economics literature. An analysis of disaggregated industry data for four countries after each energy price shock in the 1970s reinforces doubts about the role of energy in these recessions. There was no similarity in the impact on output and employment across industries between the two recessions, and no consistent relationship between industry activity and energy intensity by industry. In addition, there is no evidence to support either the wage rigidity hypothesis or the capital obsolescence hypothesis as an explanation of the effect of energy price shocks on macroeconomic behavior.

Utility investment behavior and the emission trading market

Abstract The Clean Air Act Amendments of 1990 require electric utilities to reduce sulfur dioxide emissions and establishes a system of tradeable emission allowances to achieve this objective. This paper develops a model of utility investment decisionmaking that shows how regulatory rules will affect the utilitys incentive to choose among different compliance strategies. The results of the model are extended to the overall market for emission allowances to show how the benefits from trading can be affected by regulatory rules. The analysis provides guidance for public utility regulation that will help achieve the social objective of minimizing the cost of pollution control.

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.

SO2 allowance trading: How do expectations and experience measure up?

By any measure, the allowance trading program has been successful in meeting prescribed environmental goals at a lower cost than traditional regulatory approaches. By observing the SO2 programs early performance, we can gain experience that will help us design other environmental programs. However, we caution that the measure of success can be easily exaggerated.

Utilities and state regulators are failing to take advantage of emission allowance trading

Abstract Regulators are not providing active encouragement to utilities to engage in emissions trading, and utilities are behaving as if trading were restricted to state or system borders. If this pattern of behavior continues, emission allowance trading among U.S. electric utilities will prove to be considerably less successful — and less cost-effective — than originally expected.

Analyzing nonrenewable resource supply

Starting with their vision of a useful model of supply behavior as dynamic and market oriented, the authors examine the literature to see what it offers, to fill in some of the missing elements, and to direct attention to the research that is required. Following an introduction, separate chapters deal with the basic theory of supply behavior; joint products, externalities, and technical change; uncertainty, expectations, and supply behavior; aggregate supply and market behavior; and empirical methods and problems. The authors argue that practical understanding of nonrenewable resource supply is hampered by gaps among theory, methodology, and data, and offer a standard designed to achieve consistency among theory, data, and estimation methods. Their recommendations for additional research focus on general specification issues, uncertainty and expectations, market-level analysis, and strategic behavioral issues. 151 references, 9 figures.

Profit Performance in the Defense Industry

There has recently been a great deal of discussion in private and official circles about the profitability of defense business. The issue is of critical importance, for if profit rates are too high the nation is wasting resources and taxpayers are overburdened, while if profit rates are too low, resources will flow out of defense business and jeopardize the quantity and quality of sources of supply. A popular opinion that defense profits are excessive is based largely on occasional public reports of assorted wastes and ineffi

The efficiency of wholesale vs. retail competition in electricity

If markets are sufficiently competitive, the retail model of restructuring is likely to produce a greater array of products and services and lower electricity prices, but the wholesale model may yield lower transaction costs and better encourage transmission investment. Which model is best? The answer is not known yet. A central issue in the debate over restructuring the electric power industry is the extent to which the market should be opened to competition. One aspect of this debate is whether competition ought to be restricted to the wholesale power market or extended all the way to retail customers. Some state regulators have recommended retail competition, while others, including the U.S. Department of Energy, prefer to limit competition to the wholesale level, at least until experience warrants taking the additional step. The purpose of this paper is to describe some of the potential differences in economic efficiency that could arise between the wholesale and retail competition models. The comparison is limited to the qualitative properties of two hypothetical market structures that are intended to reflect the essential differences between wholesale and retail competition. The authors are not concerned with problems of getting from today`s market structure to either end state.

Understanding Nonrenewable Resource Supply Behavior

Decisions concerned with finding, developing, and extracting nonrenewable resources are dynamically interrelated in complex ways. Economic theory provides a description of this process that yields useful insights, but there are gaps between theory and empirical applications that hinder our understanding of how supply responds to changes in economic incentives. Consequently, many questions concerning market efficiency as opposed to government intervention remain open.

Empirical Measures of Oil Security Premiums

This chapter brings together the material in Chapters 2 and 3 to evaluate critically several estimates of the oil security premium, including the premium for holding oil stockpiles. The first section summarizes issues related to how a premium should be measured. Subsequent sections report and comment on published estimates dating from the early 1980s to the early 1990s.