Oil Monopoly and the Climate
研究石油生产部门的产业组织对气候政策的影响，指出垄断模型比完全竞争模型更能解释石油市场历史与未来走势。
This paper takes as given that (i) the burning of fossil fuel increases the carbon dioxide content in the atmosphere, which (ii) in turn leads to global heating and global climate change of a variety that, (iii) on net, is harmful to our welfare. To answer questions about the policy implications of this, a comprehensive and quantitative analysis of the two-way interaction between the economy, with its fossil fuel use, and the climate is necessary. In this paper, however, we focus on a particular aspect of this interaction: the role played by the industrial organization in the oil-producing sector of the world. Without a clear understanding of the world market for oil, the consequences of taxes and other policy instruments cannot be evaluated. Analyses of the world oil market that are based on perfect competition and a finite amount of oil typically predict (i) that the oil price satisfies the Hotelling rule, i.e., increases so that the rate of return on storing oil is equal to the return on the capital market, (ii) that oil consumption follows a decreasing path, and (iii) that extraction is sequential in the sense that sources with lower extraction costs are depleted before high-cost sources are used. All these predictions are problematic to reconcile with data. Our main point here is that the polar opposite case—where oil is supplied by a large agent with zero extraction costs who internalizes the effects of his decisions on all aggregates—seems useful for understanding historic and future developments in the oil market.