We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The Design of Public Utility Institutions.
- Authors
Sherman, Roger
- Abstract
Costs can sometimes be traced to more than one dimension of a product, even though direct cost relationships are not always evident. In cases where costs do arise in more than one dimension, pricing in only one (or strictly, in less than the total number) of those dimensions can lead to inefficiency. Decreasing costs can appear to exist, and regulated (zero profit) monopoly may even be prescribed as the most efficient of viable solutions. But a multi-part price with each part resting on one cost dimension is to Le preferred. When some costs cannot even be imputed to any one cost dimension a public good pricing problem arises. While no single solution can then be advanced as fairest, the set of solutions seems to call for an institution unlike the regulated private corporation that is usually adopted. Users of the service need to negotiate means of sharing costs A co operative, or club, arrangement therefore seems appropriate and issues of rare structure important; debate over rate levels can be traced to the admission of more bargainers (as stockholders) to the bargaining set than is desirable. Thus, the absence of identifiable costs makes the public utility pricing problem more serious. A form of cooperative or club can work out a multi-part price that is preferable to either a single price that equals average cost or a price equal to marginal cost plus a subsidy as long as consumers and stockholders comprise the same group. Such a cooperative form of organization is not impractical or unprecedented although it may require some regulation. Lower residual risk from long-term consumer contracts might make possible heavier reliance on borrowing as a source of capital so that equity investment per user would be small enough to be reasonable. Once investment return and other fixed cost requirements are satisfied, service could be made available to contributors at marginal cost. A long-run choice is also available which can test the wisdom of the investment. Moreover, the continuing presence of the test is a. useful alternative for those who might otherwise have to choose a less preferred means of satisfying their service needs.
- Subjects
UNITED States; COST; PRICING; PUBLIC utilities; DIRECT costing; MONOPOLIES; STOCKHOLDERS; INVESTMENTS
- Publication
Land Economics, 1970, Vol 46, Issue 1, p51
- ISSN
0023-7639
- Publication type
Article
- DOI
10.2307/3145423