Public Utility Pricing and Output Under Risk.
The theory of publicly produced private goods is still in its infancy, a stepchild of the general equilibrium competitive model of privately produced private goods. Any public authority that produces and sells a private good will discharge its responsibility in an optimal manner when it acts as if i...
| Publicado en: | American Economic Review Vol. 59; no. 1; pp. 119 - 129 |
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| Autores principales: | , |
| Formato: | Artículo |
| Publicado: |
American Economic Association
Mar1969
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| Materias: | |
| Acceso en línea: | Ver este registro en EBSCOhost |
| Sumario: | The theory of publicly produced private goods is still in its infancy, a stepchild of the general equilibrium competitive model of privately produced private goods. Any public authority that produces and sells a private good will discharge its responsibility in an optimal manner when it acts as if it were a competitive industry and prices at marginal cost. The purpose of this article is to introduce elements of risk into the analysis in ways that seem analytically and empirically plausible. The social welfare function that the authority maximizes is the algebraic difference between expected willingness to pay and expected costs. The formulation of the welfare function in a riskless neoclassical world insures that net revenue is identically equal to zero. By contrast, the formulation of a comparable social welfare function when the demand function is stochastic provides an optimal price and output which insures that the public agency will have negative net revenues from its activities; short-run operating costs will be recovered but capacity cost will not. The analysis presented here indicates that optimal policy calls for a lower price and generally a larger quantity than would be obtained from the traditional model in a world without risk. |
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