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Optimal Public Utility Pricing: A Further Reconsideration

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  • Masatoshi Yamada

    (Faculty of Economics, Osaka University)

Abstract

Pricing of public utilities has long been discussed after Hotteling (1947), and most preceding arguments have provided a negative answer to the question to attain a Pareto-efficient allocation in an economy with non-convex production possibilities. Contrasting to these, Kamiya (1995) provided an argument that it is possible to devise a pricing mechanism of non-convex technology good(s) such that the equilibrium allocation under the pricing mechanism is always Pareto-efficient. The present note intends to examine a small question to find how Kamiya fs arguemnt differs from the preceding, with an intention to clarify how the efficiency property of his pricing mechanism is secured. The reconsideration however leads to a negative result that Kamiya fs pricing mechanism will fail to assure the efficiency property in a simple illustrative economy considered by himself. We first confirms that the simple example given in Kamiya contradicts his main theorem, and then review Kamiya fs proving argument and examine where any slip remains.

Suggested Citation

  • Masatoshi Yamada, 2010. "Optimal Public Utility Pricing: A Further Reconsideration," Discussion Papers in Economics and Business 10-07, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:1007
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    Keywords

    Public utility pricing; non-convex economy; Pareto-efficient allocation;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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