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Allocating the Added Value of Energy Policies

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  • Frederic H. Murphy
  • Edward C. Rosenthal

Abstract

Developing an energy policy from a collection of programs is made more complicated because there is no single value that can be used as a best estimate of the contribution of a single policy, despite the ability to estimate the impact of the complete suite. In this paper we illustrate the problem and use cooperative game theory to show one way to estimate individual effects of a policy goal in the context of collective estimates. Using an economic equilibrium model, we illustrate the behavior of four policies, namely, a gasoline tax, CAFE standards, a carbon tax, and drilling the Arctic National Wildlife Reserve, through their Shapley value contributions in measuring the impact of each in the context of a suite of policies. We apply the Shapley value to measure the average marginal reduction in imports for each policy, and present a number of scenarios that illustrate how the Shapley value behaves as a measure of policy contribution.

Suggested Citation

  • Frederic H. Murphy & Edward C. Rosenthal, 2006. "Allocating the Added Value of Energy Policies," The Energy Journal, , vol. 27(2), pages 143-156, April.
    • Handle: RePEc:sae:enejou:v:27:y:2006:i:2:p:143-156
    DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-8
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    References listed on IDEAS

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    1. Gately, Dermot, 1974. "Sharing the Gains from Regional Cooperation: A Game Theoretic Application to Planning Investment in Electric Power," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(1), pages 195-208, February.
    2. John R. Sorenson & John T. Tschirhart & Andrew B. Whinston, 1976. "A Game Theoretic Approach to Peak Load Pricing," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 497-520, Autumn.
    3. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
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