Costly Regulation: The Case of Gasoline

by Don Boudreaux on September 16, 2006

in Energy, Regulation

My friend Andy Morriss, who teaches law at the University of Illinois School of Law, and his co-author Nathaniel Stewart, just published this important paper explaining how regulations unnecessarily raise the price of gasoline in the United States.  Here’s the paper’s abstract:

Gasoline markets today are dangerously
fragmented, the result of almost one hundred years of
often-contradictory economic and environmental regulations. In this
paper, we analyze that regulatory history, highlighting how the
unintended consequences of regulation have been to reverse market
pressures toward a broad, deep national market in a commodity, pushing
the United States toward a series of loosely connected regional
markets. As a result, the American economy is vulnerable to natural
disasters, terrorist attacks, and foreign dictators in ways that it
need not be. In addition, the weakening of market forces produces
higher prices for consumers and reduced innovation by refiners. We
conclude by suggesting steps that can be taken to reduce this
vulnerability and improve gasoline markets.

So here’s a question: how much should we reckon these regulation-induced higher prices to be Pigou taxes — or at least as serving some, if not all, of the purposes that Pigou taxes would serve in this market, such as reducing Americans’ use of gasoline?


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