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Fare Evasion and Monopoly Regulation

Author

Listed:
  • Martin Besfamille
  • Nicolás Figueroa
  • León Guzmán

Abstract

We consider the regulation of a monopoly facing consumers that may evade payments, an important issue in public utilities. To maximize total surplus, the regulator sets the price and socially costly transfers, ensuring that the monopoly breaks-even. With costly effort, the firm can deter evasion. Under unit demand and fixed quality, price is independent of marginal cost, but increasing in the marginal cost of public funds. When quality is endogenous, we find sufficient conditions that imply a non-monotonic relation between price and marginal cost of public funds. We extend the model to consider non-unit demand and moral hazard.

Suggested Citation

  • Martin Besfamille & Nicolás Figueroa & León Guzmán, 2022. "Fare Evasion and Monopoly Regulation," CESifo Working Paper Series 9592, CESifo.
    • Handle: RePEc:ces:ceswps:_9592
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    References listed on IDEAS

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    Cited by:

    1. Ramos, Raúl & Silva, Hugo E., 2023. "Fare evasion in public transport: How does it affect the optimal design and pricing?," Transportation Research Part B: Methodological, Elsevier, vol. 176(C).

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    More about this item

    Keywords

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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