This chapter examines public policies sensibly designed to augment private storage thought to be inadequate because of some distortion. The public interventions examined in the two previous chapters are modeled as interventions in a first-best world of optimal rational storage. Judged from the perspective of total social welfare, not one of those price-support programs can be defended, because they cause a social deadweight loss. The public policies we consider in this chapter can make positive contributions to social welfare because existing private storage is suboptimal for some other reason. Moreover, these public policies can be ranked by their contribution to social welfare.

A good example of a policy aimed at supplementing private storage is the Strategic Petroleum Reserve (SPR) housed in the salt domes of Louisiana. Supporters of the SPR argue that the U.S. economy is extremely exposed to supply interruptions on the part of nefarious exporters because domestic oil companies have too little incentive to store. Reasons offered include the effects of price controls on the profits from storage, macroeconomic repercussions not considered by an individual firm, and appeals to national security.

Similar intentions to increase the size and effectiveness of shared reserves are embodied in the rules of the International Energy Agency (IEA), a consortium of twenty-one industrial countries. Although Smith (1988) worries about the mismatch between the IEA's actions and goals, the agency has devised complex oil-sharing plans, imposed policies of demand restraint, and required its members to have at least a ninety-day supply of crude oil and products in store.