I've often made the point that the main benefit of subsidies for
renewable energy sources is to increase price competition on OPEC
thereby resulting in lower oil prices and greater oil consumption. I
like the irony.
More generally, the economics of subsidizing a substitute for a
monopolized product that you want *less of* is an excellent topic for
research. The model I had in mind above is one where OPEC limit prices
at the profit point of its substitutes. There are other ways of
modeling how OPEC behaves, however, and its not obvious that prices fall
under all of these.
Taking for granted the wisdom of trying to increase renewable energy
sources (I'm skeptical), I suspect that for a variety of reasons taxing
the monopolized product is a much superior strategy to subsidizing the
substitute.
Alex
--
Dr. Alexander Tabarrok
Vice President and Director of Research
The Independent Institute
100 Swan Way
Oakland, CA, 94621-1428
Tel. 510-632-1366, FAX: 510-568-6040
Email: [EMAIL PROTECTED]
