What is the value of saving a barrel of oil that would otherwise had been…March 25, 2018
In a standard economics framework, markets are seen as an efficient way of allocating resources. Consequently, the market price is used to signal the welfare effects. However, the market price may not reflect the ‘real’ value, due to market failures, resource scarcity or economic distortions. Saudi Arabia’s economy is subject to many such distortions, including energy price controls, and market prices for energy may not be a good measure of value. Calculating shadow prices of resources or opportunity costs captures this price-value divergence.
The project is in collaboration with the Baker Institute for Public Policy at Rice University, Texas.