Chapter 62: Economics of Energy Markets

Stephen H. Karlson

Economics of energy markets The improved living standards of the developed world rest on industrial processes that make intensive use of renewable and nonrenewable energy sources. Economists' attempts to understand that prosperity tend to focus on legal institutions and commercial practices rather than on resource endowments. As recently as the 1990s, David Landes's (1998) The Wealth and Poverty of Nations focuses on these institutions that enable people to contract with each other and to construct long-lived enterprises of large scale, rather than on resource endowments, including energy, as the foundations of that wealth. Thus, prosperity rests on division of labor, mechanization, and capital markets in a legal framework that enables people to coordinate their activities. Those elements were present in Adam Smith's (1776/1976) pin factory, which was supported by human and animal muscle power and wood. The energy source as contemporary economists understand it was not viewed as a Evolutionary ...

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