In Pakistan the prices of petroleum products are set by the government, to raise revenues, stabilize prices, and achieve redistributional and social objectives. But in addition to these benefits, governmental taxes and subsidies for petroleum products result in losses in economic efficiency through the misallocation of resources. How do the benefits compare with these losses? Are revenues raised in a manner that minimizes economic waste? Do the subsidies achieve equity or other social benefits at minimum cost? Each of these questions can be answered relatively easily in theory. But in practice the answers are difficult to obtain. In 1979, when this research was undertaken, even the magnitudes of taxes and subsidieswere not known by the responsible policy-makers. This ignorance is understandable, for, as described in Part II, the structure of petroleum prices is quite complex. The identification of the funds flowing in and out of the petroleum sector required new research, which is reported in Part III.