Abstract
This study presents a model of energy in the California economy and uses it to simulate long-run impacts of oil price changes under varying assumptions about the structure of the economy. The distinguishing feature of the model is flexibility. Use of generalized Leontief flexible cost functions at the sectoral level captures the substitution effects of relative price changes while, at the same time, retaining the structure of traditional input-output analysis. Experimental results suggest this innovation can be important; a doubling of the price of imported oil leads to a much larger drop in oil use and a substantially smaller drop in aggregate consumption than is obtained with a fixed-coefficient version of the model.
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