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Optimal two-part tariffs in a model of discrete choice

  • De Borger, Bruno

In this paper we study welfare-optimal two-part tariffs in a model of discrete choice. The determinants of the sign and magnitude of the fixed and variable tax are analysed in terms of the nature and degree of consumer heterogeneity, the price sensitivities of participation probabilities and conditional demands, and the nature of distributional concerns. In the absence of distributional concerns, the model generalises the ‘corrected’ Ramsey rule for the variable tax and it shows that, in the absence of collection or fixed participation costs, the fixed fee may be negative. The conditions that determine the sign of the participation fee turn out to have an intuitive economic interpretation. Finally, the implications of distributional concerns for the optimal fixed and variable taxes are analysed.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 76 (2000)
Issue (Month): 1 (April)
Pages: 127-150

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Handle: RePEc:eee:pubeco:v:76:y:2000:i:1:p:127-150
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Conrad, K & Schroder, M, 1991. "Demand for Durable and Nondurable Goods, Environmental Policy and Consumer Welfare," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(3), pages 271-86, July-Sept.
  2. Harvey S. Rosen & Kenneth A. Small, 1979. "Applied Welfare Economics with Discrete Choice Models," NBER Working Papers 0319, National Bureau of Economic Research, Inc.
  3. Glazer, Amihai & Niskanen, Esko, 1992. "Parking fees and congestion," Regional Science and Urban Economics, Elsevier, vol. 22(1), pages 123-132, March.
  4. Schmalensee, Richard., 1980. "Monopolistic two-part pricing arrangements," Working papers 1105-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Cremer, Helmuth & Gahvari, Firouz, 2002. " Nonlinear Pricing, Redistribution, and Optimal Tax Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(2), pages 139-61.
  6. De Jong, G. C., 1990. "An indirect utility model of car ownership and private car use," European Economic Review, Elsevier, vol. 34(5), pages 971-985, July.
  7. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
  8. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-79, June.
  9. Ng, Yew-Kwang & Weisser, Mendel, 1974. "Optimal Pricing with a Budget Constraint-The Case of the Two-part Tariff," Review of Economic Studies, Wiley Blackwell, vol. 41(3), pages 337-45, July.
  10. Spence, A Michael, 1980. "Multi-Product Quantity-Dependent Prices and Profitability Constraints," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 821-41, October.
  11. Small, Kenneth A., 1983. "The incidence of congestion tolls on urban highways," Journal of Urban Economics, Elsevier, vol. 13(1), pages 90-111, January.
  12. Damus, Sylvester, 1981. "Two-Part Tariffs and Optimum Taxation: The Case of Railway Rates," American Economic Review, American Economic Association, vol. 71(1), pages 65-79, March.
  13. Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
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