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economic benefits and costs to the U.S. economy (society) as a result of stockpiling petroleum. However, the model can also be extended to estimate the economic benefits and costs for each phase of stockpile operation-acquisition, holding and disposal as well as the distribution of economic benefits and costs between consumers and producers. As the examples in this assessment demonstrate, the distributive effects of economic stockpiling can be significant, and given the policy concerns within the United States for the distribution effects of programs and policies, it is appropriate for the Economic Welfare Model to address them explicitly.

In this assessment, four categories of dis

tributive effects are identified: consumers, producers, the stockpile operator (presumably the Federal Government), and external costs. In the application of the Economic Welfare Model, further disaggregation (such as by discrete income classes, employment groups or regions) may be desirable.

The direct benefits and costs of stockpiling petroleum associated with each of the categories are presented in four individual tables immediately below. It is important to note that insofar as transfer payments between consumers and producers are incorporated, these benefits and costs differ from those estimated earlier. As will be seen, these transfer payments can be substantial.

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Stockpile size (Millions of bbl)

250,000

500,000

1,000,000

(Billions of dollars)

0.00

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10.3

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4.4

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Benefits and costs to consumers

Operational action Type of benefit or cost

Acquisition

Holding

Disposal

Consumer loss (CL)

Consumer savings E (CS)*

Consumer savings E (CS')*

*These terms are expressed as expected values, i.e., they have been weighted by probabilities.

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petroleum was 6.3 billion barrels. Thus, a 10percent drop in the annual petroleum consumption (630 million barrels) would cause a 4.6-percent decrease in the GNP, or $59.8 billion.

5. Summary of Economic Net Benefits
and Partial Benefits for SP-1

The operation of an economic stockpile consists of three types of action-acquisition, holding, and disposal as discussed in the section on the conceptual logic of stockpiling in chapter III. Each of these actions generates economic benefits and costs to the U.S. economy which must be identified and analyzed. Table V-5 is a tableau which relates the types of economic benefits and costs with the individual actions in the operation of an economic stockpile. The tableau may be explained as follows: first, the economic net

benefits to the United States of a particular stockpiling policy may be defined as the net algebraic addition of all the terms in the tableau related to that policy; second, the separate terms under each operational phase indicate the partial economic benefits and costs for the four categories of economic impacts. The economic benefits and costs to the materials producers and consumers do not include those portions of the economic benefits and costs to the stockpile operator and the external costs which are ultimately borne by these two interest groups.

The results of the calculations for SP-1 are summarized in table V-6. These results are for the initial year of operation and include heavy operating costs for acquisition and substantial impacts on producers and consumers associated with acquisition and holding.

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Table V-6.-Partial benefits and costs of SP-1 for first year of operation

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Net benefits are 19.1 millions, 19.0 millions, and 14.5 millions for 250-, 500-, and 100-mbbl stockpile, respectively.

0.0

E(ED';)

2.4

0.9

0.0

-5.0

EC:

0.0

-0.9

13.7

18.1

-2.9

In this particular case, the result of stockpiling yields significant gains to consumers and losses to producers, which can be interpreted as a transfer of resources from producers to consumers. The magnitude of transfers from producers to consumers declines as the size of the petroleum stockpile increases, explained in this example principally by changes in the probabilities of cartel action associated with each stockpile size. For comparison, table V-7 illustrates the terms in the benefit and cost functions for the second year under the assumption that the prices, elasticities, and cartel probabilities are the same. It should be noted that economic net benefits are expressed in their present value. Since these net benefits are realized in a future time period, it is appropriate that they be discounted to present value. A discount rate of 8 percent has been used. The values for all other terms in table V-7 have not been discounted. In practice, the stockpile operator would periodically reassess probabilities (and other data) for cartel opera

tion and recalculate estimated economic net benefits. The results might cause the operator to increase or decrease the stockpile size with attendant economic impacts.

The data in tables V-6 and V-7 provide the basis for assessing the effects of a petroleum stockpile as follows. The cost to the Government of establishing a 250-million-barrel stockpile is estimated to be about $4.20 billion in the first year, with the major components being $2.5 billion for purchase of oil plus $1.25 billion for purchase of storage and other facilities. In each succeeding year the cost of operation would be about $450 million if the stockpile size remained unchanged. In return for this expenditure, the estimated economic net benefits to the United States would be approximately $19.1 billion in the first year. In the second year, economic net benefits change as initialization costs are deducted and the new net benefits are discounted to their present value at a discount rate of 8 percent.

Table V-7.-Partial benefits and costs of SP-1 for second year of operation

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The present value of net benefits are 18.9 millions, 21.3 millions, and 22.6 millions for 250-, 500-; and 1000-mbbl stockpile, respectively.

C. ECONOMIC IMPACTS OF STOCKPILING TO CUSHION

THE IMPACTS OF NONPOLITICAL IMPORT DISRUPTIONS (SP-2)

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