An Amendment to Baumol's Burden Test

Jörg Borrmann and Klaus Zauner ()

The B.E. Journal of Theoretical Economics, 2006, vol. 6, issue 1, 12

Abstract: In order to incorporate demand interdependencies into the analysis of fairness between the different consumer groups of a multi-product public utility, Baumol (1986) designed the burden test. This test checks whether the price of a single good generates net incremental revenues which cover at least the incremental costs of the good. It is, however, more reasonable to compare net incremental revenues and net incremental costs. Furthermore, it is useful to extend the analysis to groups of goods. Therefore, we develop a new fairness test, which we call the net burden test, and characterize its properties.

Keywords: burden test; fairness; net burden test; public utility pricing (search for similar items in EconPapers)
Date: 2006
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DOI: 10.2202/1534-598X.1125

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