The Regulatory Implications of Three Alternative Econometric Supply Models of Natural Gas

Three different econometric models of natural gas exploration and discovery have appeared in recent issues of this Journal. By estimating all of them over the same period and with the same data base, and then by simulating each of them as part of a complete supply-demand model, we can compare the regulatory policy implications of each formulation. The reestimated models are seen to have very different price elasticities from their original versions, indicating possible structural change in the industry over the past two decades. The policy implications, in terms of ceiling price increases necessary to eliminate the current shortage of gas, differ considerably among the formulations and indicate no consensus on how gas supplies are likely to respond to price increases.