Antonio Bento, from University of Southern California, will present "Why do Inefficient Policies Persist? Evidence from Price Freezes in Energy Markets"

Price freezes on essential energy commodities are a common policy tool used by governments to curb inflation expectations and protect low-income households from price volatility. However, these measures often evolve into persistent subsidies that can hinder climate policy goals. We examine the welfare costs, distributional impacts, and political determinants of such interventions by analyzing the abrupt 2013 announcement to end Brazil’s wholesale gasoline price freeze. Using an event study design, we document a 6% abnormal stock return for Petrobras—the state-owned oil company tasked with implementing the policy—indicating substantial firm-level costs. We estimate that each R$1 transferred to lower-income households via the price freeze resulted in a social cost of R$1.13, highlighting both the inefficiencies of suppressing market price signals and the price freeze’s inability to target lower-income households. Moreover, we demonstrate that alternative policies could have achieved similar redistributive outcomes at lower cost without harming any income group. Nonetheless, we argue that the salience of gasoline prices at the pump, combined with voters’ limited awareness of the price freeze's true costs, contributes to its persistence, particularly in places with competitive elections.