On measuring the gain in economic welfare from marginal cost pricing when a related market is of importance: the case of electricity and natural gas

by Stanley Besen, Bridger M. Mitchell


Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback21 pages $20.00 $16.00 20% Web Discount

Argues that an analysis of the welfare effects of electricity rate reform cannot be limited to the market for electricity alone. At a minimum the analysis must be expanded to include the market for natural gas. Consequently, in addition to observing demand functions for electricity, and the marginal cost function of supplying electricity, one must specify both the demand curves for natural gas (including the demand by electricity producers) and the marginal cost curve of supplying gas, in order to correctly analyze the effects of a change in electricity rates. Applying welfare analysis to the policy of electricity rate reform requires the use of general equilibrium models of the energy sector which incorporate demand and supply interactions between different fuels. Adapting existing models and developing new ones can contribute to evaluation of energy policy alternatives.

This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.