Sharat Ganapati Publications

This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e. incidence). In doing so, we develop a partial equilibrium methodology to estimate the incidence of input taxes that can simultaneously account for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and factor substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. We combine industry-specific pass-through rates with estimates of industry competitiveness to show that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than models featuring complete pass-through and perfect competition would suggest.

This paper estimates how increases in production costs due to energy inputs affect consumer versus producer surplus (i.e., incidence). In doing so, we develop a general methodology to measure the incidence of changes in input costs that can account for three first-order issues: factor substitution amongst inputs used for production, incomplete pass-through of input costs, and industry competitiveness. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level output prices and input costs. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. This implies that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than most existing work assumes.

This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e., incidence). In doing so, we develop a novel partial equilibrium methodology designed to estimate the incidence of input taxes. This method simultaneously accounts for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. We combine industry-specific pass-through rates with estimates of industry competitiveness to show that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than models featuring complete pass-through and perfect competition would suggest.

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.