Mathilde Benveniste, Ph.D.
"Efficiency and the Role of Government in Energy Policy"
Paper published in Energy Policy, February 1985.
Part of the reason for high oil prices is that the nation is ill prepared
to reduce oil imports in response to higher oil prices. The lead times
involved in research and development and the construction of new plants
make it difficult to respond as quickly to oil price increases as would be
risk associated with energy technology ventures delays private
investment in this sector. As a consequence, a laissez-faire
policy does not ensure that the resulting allocation of resources meets
consumers' needs at least cost -- that is, the allocation of resources is inefficient
from an economic perspective.
A successful energy policy is one that achieves the goal of economic efficiency by
anticipating oil prices and by timing the development of substitute energy
This paper provides the theoretical support for an energy policy
that aims at economic efficiency for an oil-importing nation.
Adoption of price guarantees for alternatives to oil imports and initial subsidy of energy technology development,
including subsidies for the installation of energy production capacity, are among the measures
considered. Their effect would be to increase investment by the private sector in competing alternatives to oil imports
and thus steer consumers toward energy use choices that meet their needs at a
lower cost. A
mathematical model built on simple assumptions enables the computation of the
benefit-to-cost ratio for such a policy. Its results show that the cost
of the energy policy is out-weighed by the gains in benefits to the