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The Theory of Public Utility Pricing and Its Application


  • Ronald H. Coase


In the 1930's and 1940's, the view came to be held that the right policy was to make public utility prices everywhere equal to marginal cost, even where marginal cost was less than average cost and a government subsidy was required to maintain production. This policy proposal had serious weaknesses. It did not take into account the stimulus to correct forecasting of having a subsequent market test whether consumers were willing to pay the total cost; it ignored the probably effects on the administrative structure, with state enterprise and centralized operations superceding decentralized operations; it involved a redistribution of income in favor of consumers of products produced in conditions of decreasing costs; it failed to take into account the misallocation of resources resulting from the additional taxation necessitated by the subsidies.

Suggested Citation

  • Ronald H. Coase, 1970. "The Theory of Public Utility Pricing and Its Application," Bell Journal of Economics, The RAND Corporation, vol. 1(1), pages 113-128, Spring.
  • Handle: RePEc:rje:bellje:v:1:y:1970:i:spring:p:113-128

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    Cited by:

    1. Steven G. Medema, 2010. "Ronald Harry Coase," Chapters, in: Ross B. Emmett (ed.), The Elgar Companion to the Chicago School of Economics, chapter 2, Edward Elgar Publishing.
    2. S. Littlechild & J. Wiseman, 1986. "The political economy of restriction of choice," Public Choice, Springer, vol. 51(2), pages 161-172, January.
    3. Fogarty, James & Polyakov, Maksym & Iftekhar, MD Sayed, 2017. "Equitable and Efficient systems of water utility charges in the face of a changing water supply mix," Working Papers 264780, University of Western Australia, School of Agricultural and Resource Economics.
    4. Marat S. Tugushev, 2018. "Competence’s Theorem: Solving Problems of Water Utilities," International Journal of Energy Economics and Policy, Econjournals, vol. 8(5), pages 104-112.
    5. Marian W. Moszoro & Pablo T. Spiller, 2016. "Coase and the transaction cost approach to regulation," Chapters, in: Claude Ménard & Elodie Bertrand (ed.), The Elgar Companion to Ronald H. Coase, chapter 19, pages 262-275, Edward Elgar Publishing.
    6. Valentiny, Pál, 2018. "Coase-kép másképp: középpontban a közszolgáltatások [Coase otherwise: Public utilities]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 346-381.
    7. John Freebairn, 1998. "Access Prices for Rail Infrastructure," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 286-296, September.
    8. Morton Kamien & Nancy Schwartz, 1972. "Exclusion costs and the provision of public goods," Public Choice, Springer, vol. 12(1), pages 43-55, March.
    9. David, Laurent & Le Breton, Michel & Merillon, Olivier, 2007. "Kolm as a Contributor to Public Utility Pricing, Second Best Culture and the Theory of Regulation," IDEI Working Papers 490, Institut d'Économie Industrielle (IDEI), Toulouse.
    10. Alain Marciano, 2019. "Ronald H. Coase (1910–2013)," Post-Print hal-02306814, HAL.

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