Optimal Public Utility Pricing: A Further Reconsideration
AbstractPricing of public utilities has long been discussed after Hotteling (1947), and most preceding arguments have provided a negative answer to the question to attain a Pareto-efficient allocation in an economy with non-convex production possibilities. Contrasting to these, Kamiya (1995) provided an argument that it is possible to devise a pricing mechanism of non-convex technology good(s) such that the equilibrium allocation under the pricing mechanism is always Pareto-efficient. The present note intends to examine a small question to find how Kamiyafs arguemnt differs from the preceding, with an intention to clarify how the efficiency property of his pricing mechanism is secured. The reconsideration however leads to a negative result that Kamiyafs pricing mechanism will fail to assure the efficiency property in a simple illustrative economy considered by himself. We first confirms that the simple example given in Kamiya contradicts his main theorem, and then review Kamiyafs proving argument and examine where any slip remains.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 10-07.
Length: 15 pages
Date of creation: Mar 2010
Date of revision:
Public utility pricing; non-convex economy; Pareto-efficient allocation;
Find related papers by JEL classification:
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
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