Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing

Sharat Ganapati, Joseph Shapiro and Reed Walker

No 2038, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sucient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We find heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.

Keywords: Pass-through; incidence; energy prices; productivity; climate change (search for similar items in EconPapers)
JEL-codes: H22 H23 L11 Q40 Q54 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2016-05
New Economics Papers: this item is included in nep-com and nep-ene
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Citations: View citations in EconPapers (18)

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Working Paper: Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing* (2016)
Working Paper: Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing (2016)
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