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An Amendment to Baumol's Burden Test

Author

Listed:
  • Borrmann Jörg

    (University of Vienna)

  • Zauner Klaus G.

    (University of York)

Abstract

In order to incorporate demand interdependencies into the analysis of fairness between the different consumer groups of a multi-product public utility, Baumol (1986) designed the burden test. This test checks whether the price of a single good generates net incremental revenues which cover at least the incremental costs of the good. It is, however, more reasonable to compare net incremental revenues and net incremental costs. Furthermore, it is useful to extend the analysis to groups of goods. Therefore, we develop a new fairness test, which we call the net burden test, and characterize its properties.

Suggested Citation

  • Borrmann Jörg & Zauner Klaus G., 2006. "An Amendment to Baumol's Burden Test," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-12, June.
    • Handle: RePEc:bpj:bejtec:v:topics.6:y:2006:i:1:n:8
    DOI: 10.2202/1534-598X.1125
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    References listed on IDEAS

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    1. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-977, December.
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