Cross Subsidies in Public Services: Some Issues
Pricing policy recommendations infrastructure services are based on two principles. One is that prices should cover the total cost of the service. The other is that cross subsidy schemes should be avoided. This technical paper explores the economic literature for rules on applying these principles to real world infrastructure services. The discussion is based on a partial equilibrium approach that uses market surplus as a proxy for social welfare and efficiency. Three main conclusions are reached in this paper. First, if a uniform price schedule is established and prices diverge from marginal cost, then social welfare can be increased by establishing appropriate price discrimination schemes that have cross subsidies. Second, from a voluntary sustainability standpoint, some cross subsidy schemes are not suitable, whereas others are appropriate. Third, sometimes, optimal and voluntary sustainable price schedules are not compatible. In these cases, a trade-off between optimality and sustainability is often necessary.
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Format: | Technical Notes biblioteca |
Language: | English |
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Inter-American Development Bank
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Subjects: | Infrastructure Work, Financial Market, Financial Policy, Public Utility, |
Online Access: | http://dx.doi.org/10.18235/0008778 https://publications.iadb.org/en/cross-subsidies-public-services-some-issues |
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dig-bid-node-113262024-05-30T20:08:13ZCross Subsidies in Public Services: Some Issues 2000-01-01T00:00:00+0000 http://dx.doi.org/10.18235/0008778 https://publications.iadb.org/en/cross-subsidies-public-services-some-issues Inter-American Development Bank Infrastructure Work Financial Market Financial Policy Public Utility Pricing policy recommendations infrastructure services are based on two principles. One is that prices should cover the total cost of the service. The other is that cross subsidy schemes should be avoided. This technical paper explores the economic literature for rules on applying these principles to real world infrastructure services. The discussion is based on a partial equilibrium approach that uses market surplus as a proxy for social welfare and efficiency. Three main conclusions are reached in this paper. First, if a uniform price schedule is established and prices diverge from marginal cost, then social welfare can be increased by establishing appropriate price discrimination schemes that have cross subsidies. Second, from a voluntary sustainability standpoint, some cross subsidy schemes are not suitable, whereas others are appropriate. Third, sometimes, optimal and voluntary sustainable price schedules are not compatible. In these cases, a trade-off between optimality and sustainability is often necessary. Inter-American Development Bank Paulina Beato Technical Notes application/pdf IDB Publications en |
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Infrastructure Work Financial Market Financial Policy Public Utility Infrastructure Work Financial Market Financial Policy Public Utility Inter-American Development Bank Cross Subsidies in Public Services: Some Issues |
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Pricing policy recommendations infrastructure services are based on two principles. One is that prices should cover the total cost of the service. The other is that cross subsidy schemes should be avoided. This technical paper explores the economic literature for rules on applying these principles to real world infrastructure services. The discussion is based on a partial equilibrium approach that uses market surplus as a proxy for social welfare and efficiency. Three main conclusions are reached in this paper. First, if a uniform price schedule is established and prices diverge from marginal cost, then social welfare can be increased by establishing appropriate price discrimination schemes that have cross subsidies. Second, from a voluntary sustainability standpoint, some cross subsidy schemes are not suitable, whereas others are appropriate. Third, sometimes, optimal and voluntary sustainable price schedules are not compatible. In these cases, a trade-off between optimality and sustainability is often necessary. |
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Paulina Beato |
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Paulina Beato Inter-American Development Bank |
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Technical Notes |
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Infrastructure Work Financial Market Financial Policy Public Utility |
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Inter-American Development Bank |
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Inter-American Development Bank |
title |
Cross Subsidies in Public Services: Some Issues |
title_short |
Cross Subsidies in Public Services: Some Issues |
title_full |
Cross Subsidies in Public Services: Some Issues |
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Cross Subsidies in Public Services: Some Issues |
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Cross Subsidies in Public Services: Some Issues |
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cross subsidies in public services: some issues |
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Inter-American Development Bank |
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http://dx.doi.org/10.18235/0008778 https://publications.iadb.org/en/cross-subsidies-public-services-some-issues |
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AT interamericandevelopmentbank crosssubsidiesinpublicservicessomeissues |
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1806236938615652352 |