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Fuel subsidies versus market power : is there a countervailing second-best optimum?
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Adetutu, Morakinyo O. and Weyman-Jones, Thomas G. (2019) Fuel subsidies versus market power : is there a countervailing second-best optimum? Environmental and Resource Economics, 74 (4). pp. 1619-1646. doi:10.1007/s10640-019-00382-3 ISSN 0924-6460.
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Official URL: http://dx.doi.org/10.1007/s10640-019-00382-3
Abstract
Fuel subsidies distort end-use prices below cost, resulting in overconsumption and huge environmental cost. On the other hand, the mark-up over cost due to the exercise of market power results in the social loss of consumer surplus. We open a new line of inquiry into the potential for a market-based solution from these two countervailing forces: can the two offsetting distortions conceivably achieve a second- best optimum? Relying on dynamic panel techniques and gasoline market data for 68 developing countries, we uncover an excessive second-best subsidy offset to market power mark-up on the order of 4.5. Our results indicate that the potential for policy failure strongly exceeds the potential for market failure in our model, and gasoline prices across our sample may not be aligned with vigorous anti-climate change policy.
| Item Type: | Journal Article | ||||||
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| Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce |
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| Divisions: | Faculty of Arts > School for Cross-faculty Studies Faculty of Arts > School for Cross-faculty Studies > Global Sustainable Development |
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| Library of Congress Subject Headings (LCSH): | Fuel trade -- Subsidies , Business enterprises -- Finance, Corporations -- Finance, Gasoline -- Prices -- Econometric models, Developing countries -- Economic conditions | ||||||
| Journal or Publication Title: | Environmental and Resource Economics | ||||||
| Publisher: | Springer | ||||||
| ISSN: | 0924-6460 | ||||||
| Official Date: | 5 November 2019 | ||||||
| Dates: |
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| Volume: | 74 | ||||||
| Number: | 4 | ||||||
| Page Range: | pp. 1619-1646 | ||||||
| DOI: | 10.1007/s10640-019-00382-3 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Open Access (Creative Commons) | ||||||
| Date of first compliant deposit: | 19 May 2020 | ||||||
| Date of first compliant Open Access: | 20 May 2020 |
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