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Pricing of Electricity: Is Two-part Tariff the Answer


  • Prabal Ray Chaudhuri

    (National Institute of Public Finance and Policy)

  • Uma Vishvanathan

    (Indian Statistical Institute, New Delhi)


The problem of unprofitable, as well as inefficient generation of electricity is attributed among other reasons, to the one-part tariff charged by the central electricity generating units from the state electricity boards (SEBs). We argue that the objective function of the SEBs depends on the consumers' surplus and the output generation from its own plants. We show that in the presence of a fixed consumer price of electricity, two-part tariffs cannot solve either problems. Even with a flexible consumer price, two- part tariffs can work only if the pricing scheme is designed so as to restrict over-production of electricity.

Suggested Citation

  • Prabal Ray Chaudhuri & Uma Vishvanathan, 1994. "Pricing of Electricity: Is Two-part Tariff the Answer," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 29(1), pages 57-69, January.
  • Handle: RePEc:dse:indecr:v:29:y:1994:i:1:p:57-69

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    More about this item

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General


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