Abstract:

Deviating from marginal cost is a common practice in oil products pricing. Israeli pricing set deviations according to the price relationships of an exogenous selected market.   In this paper we compare this solution with the solution obtained from a maximizer social planner model that takes into account efficiency and income distribution considerations. Through welfare index calculations and comparative statics exercises we show that welfare can be affected by exogenous developments from the point of view of the local market.