Pricing and Price Regulation: An Economic Theory for Public by D. Bös

By D. Bös

This transparent, accurately written textual content provides a massive department of the trendy, micro-economically dependent concept of commercial association and of public finance, using calculus only.

Answers are supplied to a few pertinent financial questions, resembling the pricing rules of vote-seeking politicians, of empire-building bureaucrats and of out-put-maximizing and energy-saving public utilities. those regulations are in comparison with the welfare fiscal benchmark ideas e.g. on marginal fee pricing and Ramsey pricing. nice value is hooked up to cost regulation.

The publication elucidates the hot substitute of fee of go back rules through price-cap rules. It additionally explains why many easy principles like yardstick legislation fail to accomplish optimum costs, which indicates how advanced it truly is to urge managers to in truth display their deepest info. How this is often accomplished appropriately is proven in a variety of principal-agent versions on legislation with doubtful expenses, doubtful call for and with delicate finances constraints.

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Extra resources for Pricing and Price Regulation: An Economic Theory for Public Enterprises and Public Utilities

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5) ho technology and subject to the market-clearing conditions, the public sector's its revenue-cost constraint. The individual utility levels v are exogenouslyh 1 exist Lagrangean multipliers A given. In any optimum following (5) there which relate to the utility constraints (A := 1). Optimal prices and quantities will usually differ if we follow (5) instead ofh maximizing (2) subject to the same constraints. However, after eliminating h A and A respectively, the marginal conditions on which all our analyses will Optimization with respect to prices leads directly to the expressions dxi/dp k which can6be easily interpreted.

Why should a regulated privatized enterprise be preferable to a public enterprise? Somebody who knows public utilities from his professional business as public official or as manager would answer these questions in the following way: first, privatization would be coupled with dismissing bureau­ cratic government officials. A new generation of regulators would be put to work which is better informed about costs, prices, and operational efficiency In addition to not privatizing the monopoly or regulating the privatized monopoly, the government has a third option - forcing the monopolist to accept competitors' traffic on its system (as was done to British Telecom and is being done to British Rail).

Chapter 2: Special Pricing Rules: Objectives and Constraints 43 Last but not least, positive theory can cope with satisficing, instead of optimizing, behavior. In this book we will treat one example where prices are determined by particular accounting axioms based only on knowledge of cost functions. Prices, according to that approach, are not derived from a maximization problem, but are designed for the purpose of sharing the costs incurred among the customers. 3 Constraints I: Markets We now come to the integration of a public enterprise into the general frame­ work of a market economy.

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