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On Correcting the Cross-Subsidies Caused by the US Postal Tariff

In: The Changing Postal Environment

Author

Listed:
  • Edward S. Pearsall

    (Independent Consultant)

  • Margaret M. Cigno

    (U.S. Postal Regulatory Commission (PRC))

  • Lyudmila Y. Bzhilyanskaya

    (U.S. Postal Regulatory Commission (PRC))

Abstract

Cross-subsidies are evidence of defects in the prices charged by a multi-product public enterprise. Products with prices causing cross-subsidies may be identified by applying the complete incremental cost test described by Faulhaber (Am Econ Rev 65:966–977, 1975) and Pearsall (J Regul Econ 36:274–285, 2009). This paper describes the application of the test to the US postal tariff of FY 2018, the calculation of upper and lower bounds to the price increases needed to eliminate the cross-subsidies identified by the test, adjustments to the bounds made to account for demand effects, and the determination of efficient Ramsey-Boiteux price increases.

Suggested Citation

  • Edward S. Pearsall & Margaret M. Cigno & Lyudmila Y. Bzhilyanskaya, 2020. "On Correcting the Cross-Subsidies Caused by the US Postal Tariff," Topics in Regulatory Economics and Policy, in: Pier Luigi Parcu & Timothy J. Brennan & Victor Glass (ed.), The Changing Postal Environment, pages 111-128, Springer.
    • Handle: RePEc:spr:topchp:978-3-030-34532-7_9
    DOI: 10.1007/978-3-030-34532-7_9
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