ABSTRACT
The importance of petroleum as a source of energy to the United States and other industrialized economies is by now a matter of common knowledge. Partly in response to the Mideastern oil cutoffs since 1973, as well as the recognition of the U.S. economy’s dependence on foreign sources of oil, many economists have advocated a variety of government policies aimed at mitigating the effects of disruptions in the international oil supply network. Examples of such proposals, which range from tariffs on imported oil to government-held strategic petroleum reserves, may be found in Nichols and Zeckhauser (1977), Nordhaus (1974), Teisberg (1981), Tolley and Wilman (1977), and Wright and Williams (1982), among others. In essence, all of these proposals revolve around the notion that the private sector of the economy is somehow incapable of dealing in a socially optimal way with shocks to the supply of oil.
