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Pricing Schemes for Regulated Enterprises and Their Welfare Implications in the Case of Electricity

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  • Dionissis Dimopoulos

Abstract

This paper examines the implications of implementing different pricing schemes--average cost pricing, two-part tariff, declining block, inverted rates--for electricity. A model is developed which can be applied to any public or regulated enterprise which maximizes welfare subject to a budget constraint. The model puts emphasis on deriving optimal pricing rules that balance efficiency and distributional equity considerations. It is found that welfare improvements resulting from lifeline pricing will most likely be of no practical significance, and that, contrary to what is generally believed, it is very likely that declining block pricing can achieve higher levels of welfare.

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  • Dionissis Dimopoulos, 1981. "Pricing Schemes for Regulated Enterprises and Their Welfare Implications in the Case of Electricity," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 185-200, Spring.
    • Handle: RePEc:rje:bellje:v:12:y:1981:i:spring:p:185-200
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    Cited by:

    1. Miravete, Eugenio, 2004. "Are all those Calling Plans Really Necessary? The Limited Gains From Complex Tariffs," CEPR Discussion Papers 4237, C.E.P.R. Discussion Papers.
    2. He, Xiaoping & Reiner, David, 2016. "Electricity demand and basic needs: Empirical evidence from China's households," Energy Policy, Elsevier, vol. 90(C), pages 212-221.
    3. Michael Hennessy, 1984. "The Evaluation of Lifeline Electricity Rates," Evaluation Review, , vol. 8(3), pages 327-346, June.
    4. Garcia, Serge & Reynaud, Arnaud, 2004. "Estimating the benefits of efficient water pricing in France," Resource and Energy Economics, Elsevier, vol. 26(1), pages 1-25, March.
    5. Miravete, Eugenio, 2007. "The Limited Gains From Complex Tariffs," Working Paper Series 3971, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    6. Severin Borenstein, 2012. "The Redistributional Impact of Nonlinear Electricity Pricing," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 56-90, August.
    7. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    8. Castro-Rodriguez, Fidel, 1999. "Wright tariffs in the Spanish electricity industry: The case of residential consumption," Utilities Policy, Elsevier, vol. 8(1), pages 17-31, March.
    9. Kanbur, Ravi & Tarkiainen, Ritva & Tuomala, Matti, 1998. "Non-Linear Utility Pricing and Targeting the Poor," Working Papers 179318, Cornell University, Department of Applied Economics and Management.

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