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Long-Term Contracts for Crude Oil imports into Costa Rica: A General Equilibrium Analysis

Energy is critical for all human activity. Many countries import a major proportion of essential energy resources such as oil, for which the ability to substitute alternative inputs is difficult in both the short and long run. A possible response to the prospect that energy prices can fluctuate is for governments to negotiate long-term contracts with suppliers to mitigate sudden price shocks. This strategy is, however, not cost-free. It is equally rational for suppliers to negotiate high prices which protect them from the prospect of having to supply their oil at a lower price than they could anticipate in the future. A country seeking long-term protection from unstable oil prices via long-term contracts, therefore, faces higher current prices.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Access – Energy Poverty and Equity

JEL Codes: Q40: Energy: General, Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources, Q16: Agricultural R&D; Agricultural Technology; Biofuels; Agricultural Extension Services

Keywords: Oil imports, Long-term contracts, Costa Rica, GE analysis

DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No1-10

Published in Volume 10, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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