Effect of Price Controls on the Production of Crude Petroleum

摘要

The recent history of petroleum prices, production, and reserves is illustrated in a series of tables and federal price controls since 1972 are reviewed. Price controls are shown to reduce the level of output through a variety of mechanisms. They reduce the optimal level of all inputs since the marginal value product of each input is reduced when the price received for crude oil is reduced. They also cause current production to be shifted toward the future in an attempt to reduce current costs. Finally, price controls reduce the desired level of investment in new reserves by truncating the distribution of possible future prices, thereby reducing the expected price. (ERA citation 05:008090)